A recent entrant in Asia's commodities markets, Australia's Westpac Banking Corp is ramping up to take advantage of a commodities "supercycle" that it says has at least another 30 years to run. While some global banks have exited commodities due to more stringent regulations, Westpac is setting itself to support a deeper push into the region by its corporate customers, a senior executive told Reuters.
"The commodity cycle is still in the supercycle phase. The urbanization of Asia has not stopped - all we're getting at the minute is a correction," said Paul Gardner, the bank's Singapore-based Global Head of Structured Commodity Finance. "When you're dealing with a 30-40 year window (of a bull cycle), are you really late, or are you just coming to the party at the right time? There were some major players who were in very early and who are already gone."
Australia's No 2 lender by market value has been setting up a commodity trading desk in Singapore over the past 18 months, to focus mainly on lending in metals, as its customers tap Asia's construction boom. It is also eyeing the changing diets of Asia's expanding middle class to push into agriculture, and considering precious metals. Australian banks are are aiding the overseas expansion plans of their corporate clients amid plunging commodity prices that have killed a mining investment boom at home.
Westpac's commodities business across Singapore and Hong Kong has grown to 10 in the past 18 months, including a metals focused desk, bulking up its presence in Sydney and London, Gardner said. The bank also has a large energy and carbon trading team offering derivatives and OTC swaps for hedging, mainly out of its Sydney office. "The brand is becoming more well known in Asia. The importance of a strong balance sheet and credit rating is now better appreciated by our clients." The departure of some global banks and last year's commodity financing scandal in China's Qingdao port that has hurt liquidity have also opened up opportunities, Gardner said.
"Some players have exited, some lessons have been learnt. We're able to benefit from all of that, through the increased transparency and controls." Westpac will offer financing for repos and prepayment facilities and is seeing demand for dual currency loans in China. It also finances commodity trading houses in the region with working capital and for asset purchases. The next step will be to expand into agriculture. Westpac already has an office in Mumbai and a presence in Jakarta. "People in China and India are looking to upgrade their dietary protein element," Gardner said. "On their doorstep is Australia and New Zealand, huge dairy market, huge livestock market, reasonable sized grain market. It makes sense that as our clients start to put more of their livestock, dairy etc., into China, India and other Asian countries, we should be there."
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