When regulators put tougher restrictions on banks regarding commodity trades after the financial crisis, they set the stage for changes in the commodities markets that are playing out on the world stage.
As banks wind down or sell off their trading units, national companies from across the globe are stepping into the breach, and conventional commodities traders are reinventing themselves to take advantage of the opportunities they see.
Deutsche Bank, which held the fifth largest slot in the commodities business, has become the first major bank to depart the sector, although it was not the first to announce its intention to do so. JPMorgan Chase & Co. put up its commodities trading arm for sale in the summer and Morgan Stanley has been seeking a buyer for its energy trading business for two years.
But in December Deutsche Bank made it official, announcing 200 job cuts and clustering some parts of its commodities business for sale as the Special Commodities Group. The bank has said that it will continue to trade in precious metals and will also retain a few financial derivatives traders, but that it will exit the agriculture, base metals, coal and iron ore, and energy sectors.
Banks have been hit with the double whammy of lower margins and higher capital requirements, in addition to coming under regulatory scrutiny for their role in natural resources markets—not to mention a few contretemps regarding energy trading and allegations of market manipulation—, which had resulted in Deutsche Bank already having shuttered its carbon, electricity and natural gas trading operations in Europe and in North America. Of the top five, only Goldman Sachs has stuck to its guns, resisting the move to divest that has seized the other banks.