Dutch state-owned bank ABN AMRO is looking to expand its brokerage business into base metals and is on track to triple its iron ore trade financing business to reach 60 million tonnes this year, two bank officials said on May 25.
ABN AMRO is one of the top players in trade financing for commodities and energy, and competes globally with France's BNP Paribas, among other European players. ABN AMRO, which aims to grow its commodities business, already offers brokerage services for soft commodities such as sugar, coffee and cocoa. For base metals, however, it currently only offers clearing services for contracts traded on the London Metal Exchange (LME).
"We currently offer clearing services for various commodity exchanges including LME contracts and provide agri-brokerage services ... we're now looking to see if we can provide brokerage for base metals as well," said Maaike Steinebach, the bank's managing director for Energy, Commodities and Transportation for Asia.
"Most of our metals and steel customers will require some hedging opportunities and we try to support and encourage that as part of our service offering."
ABN AMRO, which opened a representative office in Shanghai last month on its return to China after exiting the country in 2007, said it was also focused on growing its commodities financing business into the country.
It financed 20 million tonnes of iron ore imports into China in 2011 and has set an ambitious target to triple the amount to 60 million tonnes this year.
Steinebach says the target remains within reach even though the world's most voracious buyer of metals and agricultural commodities has seen first-quarter GDP growth slow to its lowest in three years.
"We've seen a bit of slowdown in Chinese buying, but we believe demand will continue to be robust in the long run. Also, if iron ore prices fall lower, those sitting on the sidelines at the moment will start buying again."
Against the backdrop of the euro zone debt crisis, more Asian companies are looking to cut reliance on short-term funding in favour of longer term funding options to better prepare themselves for future shocks, Steinebach said.
The Dutch bank was nationalised during the 2008 crisis after the dramatic failure of a three-pronged hostile 70-billion-euro take-over by Royal Bank of Scotland, Fortis and Banco Santander.
Since then, ABN AMRO has been rebuilding its commercial investment banking business, and is being readied for an eventual stock market listing. Before the acquisition, the former Dutch financial giant had one of the biggest foreign-banking franchises in mainland China, operating 18 retail-banking outlets in the country.
The recent surge in the commodities financing game was posing a big risk for the industry and ABN AMRO was taking strong precautions, by stepping up due diligence, to keep out opportunistic players. Since late 2010, Chinese entrepreneurs and state firms have used trade loans to import goods such as copper and soybeans, which they then quickly sold or used as collateral for further loans, skirting government credit curbs to invest the money into the property market.
"This commodities carry-trade is going to exist for some time, especially given the tight credit situation and arbitrage opportunities," said Arthur Zou, ABN AMRO Chief Representative in China. "But we don't like to finance this type of trade. We want to finance real transactions."
The bank plans to convert its Shanghai office into a full branch, which will allow it to directly extend financing to Chinese companies via a foreign currency, Zou said. Chinese regulations stipulate a bank needs to operate a representative office in the country for at least two years before becoming a branch office.
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