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Euronmoney: Waking Giant Stirs as China Reshapes Global Commodities

Standfirst: China is taking an increasingly major trading role in global commodities as this vast, untapped investor base within the world’s fastest growing economy emerges. The next five years will see China’s influence on commodities trading rise further, according to the company leading the trend – BOCI (Bank of China International).

Over the last three decades, China has driven and shaped demand for commodities worldwide as its phenomenal growth and unprecedented infrastructure boom has moved not only mountains of earth but global markets too.

That power to shape markets has continued despite a recent slowdown in growth. China’s demand for base metals and iron ore now comprises 40-60% of global demand while its import of crude oil in May notably exceeded US imports, two years after first overtaking them.

Today, however, a significant new trend is emerging as China becomes involved not just in buying commodities but in trading them too – and the company spearheading that movement believes the role of Chinese investors could rise strongly in the next five years.

Global shift

BOCI was the first Chinese investment bank to identify the emerging demand and establish a commodities franchise in 2010 to cater to the growing client demand for commodities derivatives. Chinese participants now claim an impressive proportion of trading volume on the London Metal Exchange and other exchanges. Headquartered in Hong Kong, BOCI has been a pioneer of the country’s financial internationalisation and has established an industry-leading position through its expertise and global network of 55 subsidiaries and partnerships with financial institutions. BOCI believes there is still potentially vast demand for global commodities bubbling from a latent and untapped investor base in China. BOCI is seizing the strategic opportunity to raise its profile in a previously under-represented sector for Chinese banks.

Tong Li, Chief Executive Officer of BOCI said: “The centre of gravity of Global Commodities Trading is moving decisively towards Asia. With a global ambition, BOCI is ideally positioned to provide comprehensive investment banking services to commodities participants worldwide. ”

Although trading in metals, mining commodities and equities continue to be predominantly based in London, New York, and Chicago, more funding is flowing from Asia and a host of new trading products have become available to Asian investors. 

Arthur Fan, Global Head of BOCI Commodities, said: “Hopefully over the next five years, we'll get to the next stage in our commodity business, which is to expand our products and our service capability so we can become a key player in the landscape. “We have a clear edge when it comes to supporting Chinese clients. We have regarded ourselves as an international player from the beginning. Commodities are global business, and with a global platform we will tap into those local players.”

BOCI is currently expanding its index and structured products business for institutional and private wealth clients in China from its own private banking base in Hong Kong, and through the vast network of its parent company in China’s mainland.

Total solution platform 

BOCI has set a swift pace at the forefront of China’s shift towards global commodities trading, offering trading services for listed futures and options covering commodities including base metals, crude oil, refined oil products, precious metals, agricultural products, freight, coal and iron ore.

It now offers market-making services for over-the-counter energy, base metal and precious metal derivatives ranging from forwards and swaps to non-linear payoffs, and provides financing solutions and physical trading services covering energy, base metals and precious metals.

BOCI strives to provide an extensive range of commodity linked investment solutions with teams specialising in offering tailor-made investment products in the form of indices and structured payoffs. 

BOCI Commodity Market Strategy covers the full suite of commodity markets ranging from energy, base metals, precious metals and agriculture. Its publications for clients include the Quarterly Commodities Outlook, the Commodities Special Report and the Commodities Risk Monitor as well as frequent data updates.

With a unique insight into the Chinese market and a network of contacts throughout its well-established global market, BOCI is the leader in its field with an outstanding track record and deep-rooted influence in the capital markets of China’s mainland and Hong Kong.

Value philosophy 

BOCI has a long-standing philosophy of creating value for its customers and BOCI’s Global Commodities operates worldwide, insisting on the best industry practice in every areas of its business.

Its team of trading and risk-management professionals combines international vision and extensive experience in the local markets, meaning that BOCI’s Global Commodities can offer domestic and overseas clients a wide range of comprehensive hedging solutions and a full spectrum of client centric commodities products.

BOCI and its Global Commodities team represent an organic component of the comprehensive service platform and are committed to providing high quality commodities trading service in China and gaining a competitive edge in the international market.

Global ambition

BOCI this year signed an agreement with future exchange operator CME Group to expand the use of the renminbi outside the country’s borders, and it is in Europe that China’s growing appetite for commodities may be most keenly felt in the years ahead.

Now, BOCI is looking to expand its financing business for commodity clients, in repurchase agreements and for offtake and prepayments. In Europe, it will collaborate with Bank of China's branches for synergy in introducing more products and better services to clients. 

“In the coming years, we will start aggressively expanding our client base in Europe,” said Arthur, who pointed out that a blend of Chinese and European professionals in his London team would seek to increase business with firms in Europe.

Meanwhile two other game-changing developments look likely to accelerate China’s movement into commodities trading: The internationalisation of the renminbi which BOCI expects to continue in the future, and the huge infrastructure projects driven by China’s landmark Belt and Road initiative.

Tong Li, CEO of BOCI, said: “China’s Belt and Road Initiative is creating enormous business opportunities throughout the globe, particularly in commodities and related sectors. BOCI aims to provide a full suite of financing, trading and risk management solutions to commodities participants and facilitate business along the Belt and Road routes.”These ambitious, economy-transforming ventures across central and south-east Asia will see Chinese companies buy commodities assets overseas and seek out tailored financing and hedging capabilities provided by financial institutions such as BOCI.

The juggernaut of modernisation over the past three decades has seen China become the single biggest influence on global commodities prices. Now, an emerging breed of Chinese investors is shaping trade in those commodities – and their influence is only just starting to be felt.

ENDS