PetroChina to start metals trading, eyeing energy transition
In addition to lithium and copper, the new PetroChina unit may also look to trade nickel.
Data out this week show the likes of Goldman Sachs and JP Morgan raking in record revenues of almost $1bn/month in commodity and other trading revenue.
A recent study of mining mergers and acquisitions shows the proportion of financial firms – as opposed to other miners – taking over resource companies had increased fourfold. And perhaps the most significant indication that US banking practices honed in the property markets have arrived in minerals is news that star metals traders now command pay as high as $3 million/year.
Evidence of a relentless commodities boom for banks can be found everywhere: Although it has softened in recent months, the Standard & Poor’s GSCI index has risen fourfold since the end of 2001 and the surge drove commodity investments to a record $451bn in April this year, about 50% more than a year earlier. The GSCI, a production-weighted and tradeable index of 24 commodities of which oil, industrial and precious metals make up over 85%, is a good indicator of general price movements in the global economy.
A report by banking researcher Coalition released at the beginning of June backs up the official data. It showed a group of 10 large banks increase their commodities revenues by 55% in the first quarter.
Revenues surged 67 percent versus the fourth quarter of 2010 and rose by a third from the first quarter a year ago, according to a quarterly derivatives report by the Office of the Comptroller of the Currency (OCC). The total was the highest since the OCC, an arm of the U.S. Treasury that supervises all national banks, began breaking out the holding company data in early 2009.
On Tuesday Reuters reported on Citigroup’s commodities hiring spree in Asia and quoted Stuart Staley, the group’s global head of commodities:
Staley said that the rapid growth in commodities investing that has seen over $400 billion invested in the asset class according to industry estimates, is set to persist. “Institutional investors all talk of increasing their allocations to commodities and almost all are still underweight where they should be or would like to be.” “I think we will see 15 to 20 percent per annum growth in asset allocation to commodities over next two years, and that’s being conservative,” he said.
Over the weekend MINING.com reported on a top investment bank limiting hiring as pay for star metals traders sky-rocket:
UBS AG, Switzerland’s largest bank, is slowing down its commodities hiring expansion after a decade-long bull market drove up pay and created a scarcity of talent. UBS originally wanted to double its commodities staff. Salaries and bonuses for the most-profitable metals traders rose 20% to $2 million to $3 million last year, according to Commodity Search Partners.
All the money sloshing around in the financial system has to be poured into something. The latest study of mergers and acquisitions in the resource sector show that two of the four biggest deals of 2011 worth over $3bn are financial companies taking over natural resource companies, not strategic investments by other miners.
Lower down the scales – deals worth $50m or more – financial investors are also finding ways in. In 2009 only 3.6% of transaction involved investment houses and corporate takeover artists. By the first quarter of 2011 that figure had jumped to 16.1%.
