Commodity Trade Finance?

Maybe it's because it's more of a Euro bank thing but I don't think I have ever seen commodity trade finance discussed on WSO aside from somebody asking about a job opportunity years ago. It's one of my default recommendations for people looking for internships before applying to physical trading jobs but I must confess I don't personally deal with commodity bankers much because I'm at a larger player.

Does anyone on here work in the field? Any idea what lifestyle, comp is like? I would think the more vanilla stuff ends up being like general trade finance (Citi TTS style) that is becoming almost entirely automated, but structured products like pre-export financing, borrowing bases, inventory financing... is that reasonably interesting and ok lifetyle-wise?

I'm just kind of surprised this field has gone so under the radar on here even if it's not super sexy.

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Comments (16)

  • Analyst 3+ in HF - Other
Jul 23, 2020 - 12:07pm

I work on a commodity trading desk, and I have no idea what you're talking about, or maybe it's just that different terms are used in Europe vs the US.

Are you talking about companies that provide funding to commodity trading teams to capture arbitrage opportunities?

Jul 23, 2020 - 1:54pm

Banks who finance physical commodity production, trading, processing...

Can be things as simple as an LC for a grain shipment or structured products like pre-export financing, borrowing bases, inventory financing (which are like repos with commodity inventories - pretty common in metals).

This is not stuff you would really deal with if you trade paper but it's how most of the physical industry is financed.

  • Analyst 1 in IB - Ind
Jul 23, 2020 - 2:10pm

Most of the BBs don't really work in commodity trade finance because they don't like taking the risk associated with the physical. Instead, most Euro banks have pretty established offices around the world and lead this field (SocGen/BNP/Macquarie).

Pretty chill compared to banking (60 hours/week) but only gets bad when certain transactions go bad.

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Jul 23, 2020 - 5:07pm

That's one thing I have trouble wrapping my head around. It's not exactly a short vol game, but you are definitely short fraud in a way few sectors are (thinking the Hing Leon case for instance). From what I have seen of banks ending up with inventory from defaulted financing deals though, they are able to get solid deals for themselves.

Jul 23, 2020 - 9:19pm

I know what you are talking about. At my previous bank, we did a lot of these deals. And thus; I had to spread "comps" on their syndicated loan deals.

Tenaska Marketing Ventures
Hess Trading aka HETCO aka Hartree
Mercury Trading
There's 3-4 more, I still have info on it if you are interested in knowing more. What's the end goal? I think they make $$ off volatility of prices or something

  • Analyst 3+ in HF - Other
Jul 23, 2020 - 11:36pm

Reading through the comments here and this is a very niche business. However, if you're looking to move from physical commodity trading to a slower role, I'd look into an originator/market representative. Effectively maintain relationships with buyers/sellers and help market their commodity needs.

Most Helpful
Dec 19, 2020 - 9:34am

Worked for an Oil major, we are mostly financed by European banks (with open limits), sometimes there are prepayments but often with doc LC as counterparties are risky.
It is a niche market, well compensated but it is well known that it lacks of sex appeal, especially for younger population. However, as it is paramount in the physical trading side of commodities, it will be still needed so expect a rise of comp to attract new guys. Moreover, this niche market begins to be superseded by hedge funds and PEs that are financing more and more actors in the commodity trading industry.

Dec 19, 2020 - 4:31pm

To be honest, don't know anyone that did trade finance and moved up to a trading position, it is more ops / middle office and then trader.

I forgot to mention that rates at which they finance each transaction are really high for banks, it is juicy business till a scandal blows everything up.
As margins are really low, it requires circa 200 smooth transactions to offset one failed transaction in terms of revenue for a trading firm

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