By Peter Hobson
LONDON – Funding banks are set to make a record-breaking $20 billion buying and selling and financing commodities like oil, fuel and metals in 2022, greater than triple what they earned within the years earlier than COVID-19, analytics agency Coalition Greenwich informed Reuters.
Banks reminiscent of Goldman Sachs, Citi and Macquarie have benefitted from huge volatility and provide chain disruption in commodities markets that started in 2020 and elevated this 12 months with Russia’s invasion of Ukraine.
Sky-high commodities costs have pushed inflation to multi-decade highs, stifled the worldwide financial system and created a cost-of-living disaster in lots of nations.
However risky markets imply banks can earn more money by buying and selling commodities and providing financing, danger hedges and different companies to shoppers starting from merchants and funds to utilities and airways.
“Commodities buying and selling desks have benefitted from the unprecedented volatility,” mentioned Michael Turner at Coalition.
Vali Analytics, one other agency that tracks banks’ earnings, mentioned it anticipated funding banks to make internet earnings of $18 billion in commodities this 12 months.
Others have additionally cashed in, with commodity merchants reminiscent of Glencore and Trafigura and power companies with buying and selling arms reminiscent of BP reporting bumper earnings. [nL1N2XW24N ]
Graphics: Banks make billions from commodities: https://fingfx.thomsonreuters.com/gfx/ce/lbpgnkjkbvq/BANKS%20COMMODITIESpercent20EARNINGSpercent20SEPTpercent2022.JPG
Earlier than the pandemic, huge banks’ glory days in commodities appeared to be behind them.
Through the monetary disaster of 2008-09, funding banks have been making round $16 billion a 12 months, based on Vali. Banks managed ships, warehouses and infrastructure that moved and saved items and will earn cash by speculating on worth strikes.
However tightening regulation within the 2010s compelled them to downsize and ban in-house hypothesis, and by 2017 internet earnings had shrunk to $4.6 billion, Coalition information reveals.
From 2020, earnings surged. Most commodity costs plunged when the coronavirus hit, then rallied. Provide dislocations handed large earnings to corporations in a position to entry supplies and commerce throughout markets.
When Russia, a serious commodities producer, invaded Ukraine in February, costs shot up. The world financial system then veered in the direction of recession and costs of most of them slumped, although pure fuel continues to surge.
Within the first six month of 2022, funding banks made $6.6 billion in oil and fuel markets, nearly the identical quantity they made in the entire of 2021, Coalition information present.
In metals, they earned $3.1 billion in January-June, in comparison with $4.6 billion in all of 2021. In agricultural markets, they made $600 million, twice the $300 million they made in 2021.
Different main commodity-trading banks embrace JPMorgan, Financial institution of America, BNP Paribas and Morgan Stanley.
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