denotes premium content | Jan 7 2009 Trade & Forfaiting Review magazine archive
Volume 9 Issue 8
This month Société Générale Cross Asset Research released a report forecasting the end of the ‘commodities bubble’. The report states that while an analysis of the fundamentals may partially justify the bull trend in commodities since 2002, it does not explain the acceleration in prices since late 2005.
The recent correction in commodity prices following six months of near uninterrupted increase signifies “the formation of a speculative bubble”, say the analysts. According to Soc Gen, commodity markets moved from a simple overshooting to a speculative bubble three months ago. “Our estimates show that zinc and copper are currently overvalued by between 120% and 150%.” You can compare this with Natexis Commodities Markets’ predictions in ‘Metal prices are looking to run out of steam’, this issue.
The Soc Gen report, which is split into three parts, also compares the current climate in the commodity market with the dotcom bubble of 2000 (see ‘Silicon Valley dreams’ for our profile of dotcom survivor and current vice president at TradeBeam, Duncan Jackson). Its reasoning: the commodities bubble began between the third quarter of 2005 (for oil) and the fourth quarter 2005 (for industrial metals). “Analysis of past bubbles suggests an average duration of between nine and twelve months. We [therefore] anticipate the turn in the commodities cycle will happen towards the end of 2006.”
Soc Gen predicts that in the last phase of the bull run, industrial metals should outperform precious metals, which in turn will outperform energy. “This classification should logically be roughly the same in the correction phase,” it says. Looking ahead to the second half of 2007, the expectation is that the market will become “more selective” and will “prefer those commodities for which fundamentals offer the most solid prospects”. So, the commodities bubble is about to burst. The truth? Or market manipulation? I’ll let you decide.
Michele Martensen, editor
Features
Taking security in Turkey
Jülide Güney, attorney at law, and Gökhan Enkür, trainee solicitor at Güner Law Office in Istanbul, discuss different types of security interest used in trade-finance transactions under Turkish law.
Trade protection
Investment protection treaties and their impact on the political risk insurance market. By Nina Hall, senior legal counsel at Omni Bridgeway in London.
Mitigating risk
Morris Blumenthal and Justin Fowke, lawyers in DLA Piper's trade finance group, look at the means by which appropriate structuring can mitigate risk for agricultural commodity finance, taking Sub-Saharan Africa as their example.
Betting against the weathermen
Banks and commodity producers routinely use derivatives to hedge against fluctuations in price. Now they're looking at weather derivatives to hedge against unforeseen climate change. Amanda Greene reports.
Heading to the capital markets
A bank securitises ECA-guaranteed receivables. A small-sized Colombian corporate finds a bank to take it to the capital markets for the first time. A pension fund in Mexico invests in a local securitisation. Players on all points of the trade-finance transaction are tapping the capital markets. The end result is a lower cost of funds for everybody. Erika Morphy reports.
Silicon Valley dreams
Even before he joined TradeBeam, Duncan Jackson was watching out for tech trends that could deliver significant change to global business. From marketing on the internet in his university days, to global trade management today, he has always been fixed on the future. Amanda Greene reports.
Turkey’s traders look for structured solutions
Cinar Cankut is general manager of Oytas, an international trading company owned 100% by the Oyak Group – one of Turkey’s largest industrial conglomerates. In this respect he is a classic target for structured trade finance banking products. In an interview with Trade & Forfaiting Review, however, he suggests banks – both foreign and Turkish – could do more to help mid-level Turkish trading companies such as Oytas.
Regulars
Is there anybody there?
Recruiter, Easybuck, is on the lookout to fill a trade sales mandate. Ace Banker takes the call…
Metal prices are looking to run out of steam
Metals prices have continued to rally, irrespective of what is happening to the fundamentals. And having predicted investor interest would begin to fall back, Natexis Commodities Markets has also been surprised by the continued amount of buy-side activity.
Top trading partners
Erika Glorigiano, head of global trade finance at BBVA in Brazil, looks at trade flow between Brazil and the rest of Latin America.
Trade finance brings Argentina back into the fold
An aluminium smelter expansion deal for Argentina’s Aluar brings back Coface and Hermes and demonstrates how trade-finance techniques can combine to rekindle financing opportunities for post-crisis markets. Dominique Fraisse, global head for metal and mining industries at Natexis Banques Populaires in Paris explains the deal.
Letter from Hong Kong
Simon lives in Shanghai. He dresses all in black, has cropped hair and wears dark glasses. He looks like the Latvian mafia. In fact, he is the successful manager of a furniture business. People also think he’s the owner, but he’s not. The company is owned by a group of individuals who share common values, common wealth, “A mad cult”, as one insurer once told me...
Trade exports: Italian style
The Italian industrial sector is largely made up of small and medium-sized enterprises, of which a large proportion exports more than 60% of turnover, writes Francesca Beomonte, head of trade product sales Italy - HVB Corporates & Markets, Bayerische Hypo- und Vereinsbank in Milan.
