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Commodities Trading Jumped 23% Last Year Even as Banks Retreat

March 10, 2014
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Commodities derivatives trading jumped 23 percent last year, led by the U.S. and China, even as the biggest banks pulled back amid slumping revenues.

The increase in commodities trading, which accounted for 18 percent of volumes across all products, outpaced gains in interest rate and currency derivatives, the World Federation of Exchanges said in an e-mailed report today. Equity volumes fell 5.3 percent, it said.

Trading volumes climbed even as investors pulled $47.2 billion out of commodities and lenders from JPMorgan Chase & Co. to Morgan Stanley sought buyers for their raw materials units. The Standard & Poor’s GSCI gauge of 24 commodities posted its worst year in five in 2013 as banks including Citigroup Inc. called an end to the super cycle that caused prices to advance almost fourfold since 2001.

Commodities derivatives trading rose to 4 billion contracts in 2013, from 3.24 billion a year earlier, as volumes were boosted by transfers of cleared over-the-counter energy swaps to futures by the InterContinental Exchange and the "continuing sharp increase" in volume at exchanges in mainland China, according to the report.

"This is a natural shift of trading activity and liquidity to an exchange and cleared market as opposed to traditional, bilateral OTC trade," said Aakash Doshi, a strategist at Citigroup in New York. "This is happening across many fixed- income asset markets and commodities are not immune to that."

Futures trading jumped 24 percent to 3.78 billion contracts, while options trading rose 17 percent to 224 million contracts, it said. The U.S. and mainland China accounted for 79 percent of global commodity derivatives volumes in 2013.


OTC Market


The notional value of commodity forwards, swaps and options outstanding in the OTC market shrank to less than $3 trillion of contracts in 2013, compared to more than $8 trillion in 2007, Citigroup says.

Commodities revenue at the 10 biggest investment banks shrank 18 percent to $4.5 billion in 2013 as a "depressed client environment" and low volatility continued to erode earnings, analytics company Coalition Ltd. said last month.

JPMorgan entered exclusive talks to sell its physical commodities unit to Mercuria Energy Group Ltd., two people briefed on the matter said in February. A subsidiary of Russia’s OAO Rosneft agreed to buy Morgan Stanley’s global oil-trading and transport business in December. Deutsche Bank AG is cutting about 200 commodities jobs after deciding last year to exit dedicated energy, agriculture, dry bulk and base metals trading.

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