Commodity Slump Spurs INTL FCStone Asia Growth as Banks Cut

Jan 15, 2014 6:32 am ET

(Adds crude oil price in 11th paragraph.)

Jan. 15 (Bloomberg) -- INTL FCStone Inc. plans to double its commodities staff in Asia in the next three years at a time when some of the biggest banks are retreating from the market.

The New York-based financial-services company has about 60 people in Asia, mostly focused on precious and industrial metals and agriculture, according to Peter Rizzo, the regional deputy chief executive officer. INTL FCStone plans to double the revenue of its local unit, he said in an interview in Singapore, and may start a regional energy business.

The expansion contrasts with cutbacks at banks including JPMorgan Chase & Co. and Deutsche Bank AG, which are trimming commodities staff and trading activity globally. The world’s biggest lenders are employing the fewest commodity traders, salespeople and analysts in at least four years amid tighter government regulations and after the second annual drop in prices since 2001, according to Coalition, a London-based analytics company.

“The short-term correction of prices that we are enjoying now I don’t think will last for long because demand growth in China, India and countries like Indonesia is not slowing,” Rizzo said. “Asia represents an exciting opportunity.”

Economic growth in the Asia-Pacific region may be 5.3 percent this year, led by China, compared with a global rate of 3.4 percent, according to Barclays Plc. Copper consumption may increase 7.5 percent in the country, the biggest user, compared with worldwide expansion of 4.5 percent, the bank said in a Jan. 13 report. Chinese oil demand growth is forecast at 3.5 percent, higher than the global rate of 1.1 percent, Barclays said.

Hong Kong

INTL FCStone plans to open its fifth Asia-Pacific office next month in Hong Kong, according to Rizzo. It will initially handle London Metal Exchange trading with about four or five employees, growing to as many as 20 as it expands to include precious metals, he said Jan. 8. The company is among the 11 LME members that can take part in open outcry trading.

Rizzo will become Asia CEO at about the end of this year as incumbent Malcolm Wilde returns to the U.K., according to Wilde, who has been with the company since 2006 and helped start the Asian unit. Rizzo, 48, has spent about 25 years in commodities and joined INTL FCStone from Standard Bank Group Ltd. in 2009.

Martin Huxley joined the company this month as Asia head of precious metals based in Singapore, Rizzo said. Huxley is the former head of regional structured finance at Standard Bank in Hong Kong.

Commodity Headcount

The company joins some lenders including ABN Amro Group NV in adding commodity staff in Asia. The region now accounts for about 25 percent of the 250-strong team at the state-owned Dutch bank, Jan-Maarten Mulder, global head of commodities, said in December. Grupo BTG Pactual, a Sao Paulo-based lender, will start commodities trading in Singapore this year, three people with knowledge of the matter said last month.

Total headcount in commodity units at the 10 largest global investment banks as of September was about 4 percent lower than at the end of 2012, according to Coalition. Combined commodity revenue probably dropped 14 percent to $4.7 billion in 2013 at the banks, which include Goldman Sachs Group Inc. and Morgan Stanley, Coalition forecasts.

The Standard & Poor’s GSCI Spot Index tracking 24 commodities lost 2.2 percent in 2013, snapping four years of gains. Corn futures slumped 40 percent while gold slid 28 percent in its biggest drop since 1981. Oil climbed 7.2 percent.

Bear Market

The cycle that sent prices rising almost fourfold over 10 years is reversing and will eventually drive raw materials into a structural bear market, Goldman Sachs analysts said in a Jan. 12 report. Growth in shale oil output will keep U.S. energy prices low, reinforcing economic growth and leading to more tapering of government stimulus, the bank said. That will temper raw-material demand in emerging markets and lead to weakened currencies that will encourage more production.

Deutsche Bank is cutting about 200 jobs, the company said in December. JPMorgan, the biggest U.S. bank by assets, plans to sell most of its physical raw materials business ranging from metals to oil while Bank of America Corp. said Jan. 7 it will withdraw from Europe’s power and natural gas markets.

Some banks are shrinking their commodities business as the U.S. Federal Reserve reviews their control of raw-material assets and regulators demand more reserves to cover losses. The Fed is planning to release a notice seeking information on ways to curb banks’ ownership and trading of some commodities as it tries to cut risk for deposit-taking banks, according to three people briefed on the discussions.

INTL FCStone’s business includes broking, clearing, risk management and advisory services to clients in commodities. The company also handles foreign exchange and equities. Shares of the company rose 6.2 percent last year in New York and gained 0.4 percent to $18.56 since the start of January.

--Editors: Alexander Kwiatkowski, James Poole