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commodit y risk management & tr ading
REPRINTED FROM
Risk.net February 2017
Axpo
Commitment wins out
Energy Risk’s latest commodity rankings show that committed dealers, such as Societe Generale and UBS, have reaped the benefits
of increased interest in hedging and investing. By Pauline McCallion
W
hile 2016 saw many corporate over the course of last year as a result.
players re-engage with price “With very low prices, many industrials and
risk management, increased other big companies decided to hedge power
interest from investors also forwards medium to long term and, on the
bolstered business for the top-ranked organisa- other side, when we had a period in which
tions in the latest Energy Risk commodity power prices went up again, producers were
rankings. As the industry settled following then very interested in hedging. So this gave us
several years of headline-grabbing exits by major opportunities on the demand side and on the
participants, those that remained have reaped production side,” De Luca says.
the benefits of the surge in trading activity across
the global commodities markets. The return of investor interest
Commodity producers in particular were In addition to demand from physical market
reminded of the importance of price risk participants, investor interest also played a part
management in 2016, according to François “With very low prices, many in driving commodity market activity, particu-
Combes, deputy global head of commodities industrials and other big companies larly in the first half of 2016. In relation to
markets and global head of metals markets at decided to hedge power forwards industrial commodities, Robin Bhar, metals
Societe Generale. This resulted in increased analyst at Societe Generale, attributes this to
demand for hedging tools among participants in
medium to long term and, on the China’s rebound and hopes for a stronger US
markets such as metals, he says: “2016 was the other side, when we had a period economy under president Donald Trump,
comeback year for producer hedging business as in which power prices went up combined with significant cutbacks in supply.
a consequence of prices reaching levels that are again, producers were then very “In the year through to October 2016, we saw
above production costs, but also following on around $65 billion return to the commodities
from a period where prices were generally low,
interested in hedging. So this gave markets after four years of constant outflows
forcing some producers to shut down mines or us opportunities on the demand – this was investment money on the long-only
sell assets.” side and on the production side” side in various commodity products, as well as
The jolt of falling prices in recent years Domenico De Luca, Axpo long/short exposure in other commodity
prompted many producers to refocus on derivatives. That was a key feature of the markets
managing price risk, even in 2016 as prices much more serious and rigorous approach to in 2016,” Bhar says.
started to rise again. In the oil market, for risk management [after that],” Whitehead says, But the reduction or exit from commodities
example, the price of West Texas Intermediate pointing out that this was not just the case in the by numerous banks in recent years – including
(WTI) reached peaks of more than $100/barrel oil sector, but across the board in commodities. Deutsche Bank, Morgan Stanley, JP Morgan and
in 2013 and 2014, but had halved by 2015. Significant volatility in the European power Barclays – means these investors have returned
“One of the problems [the market] had back markets also lead to greater volumes for dealers to a smaller group of liquidity providers. While
in 2013 and the first half of 2014 was that in 2016. Consumers tried to lock in lower prices UBS exited the commodities business in 2012, it
producers had become a little bit too relaxed in the early part of the year, according to Axpo held onto its long-running precious metals
about risk management. When oil is at $100/ Group head of trading and sales Domenico De business and has continued to serve clients in
barrel, [producers are] making a huge fortune Luca, while producers started to hedge as prices these markets without interruption.
and if it drops to $90, they make slightly less of went up towards the end of the year in response “In 2015, a lot of banks eliminated or
a fortune, but they are still making a fortune,” to nuclear power plant outages and maintenance reduced their precious metals arms, while 2016
says Societe Generale’s global head of commodi- schedules in France and Germany respectively. saw a major return of client interest, particularly
ties markets, Jonathan Whitehead. The Swiss power market dealer, which was in gold and particularly in the first six months of
Falling prices led many producers to reassess ranked number one in the European power the year. But this wasn’t across the entire client
their risk management strategies. “In 2016, we markets in the 2017 Energy Risk commodity spectrum, it was far more focused on the
started to see a lot of defaults amongst the rankings, saw increased demand for hedging investor side of the gold market,” confirms Edel
producer community... So we definitely saw a tools from both power producers and consumers Tully, London-based global head of precious
2 risk.net February 2017metals sales at UBS, which was ranked number many banks, too much supply,” says Societe
one for precious metals and number two for best Generale’s Whitehead.
overall dealer in this year’s poll. While newer players, such as Chinese banks,
Tully links the success of UBS in the latest have gradually entered the market in recent
rankings to its continued commitment to the years, he does not predict a wholesale return by
market. The dealer’s precious metals business western banks. And while these new players
model is also particularly well suited to adapting tend to have an established commodity finance
to swings between the various pockets of business, they are generally “playing catchup”
demand in the market, she adds. when it comes to derivatives, Whitehead argues.
“You have to be able to tweak your business As a result, while liquidity is high at the short
model to adapt to such market changes and, end of the commodity markets, in plain vanilla
with a relatively broad-based model like ours, we transactions, he believes fewer dealers can satisfy
have the resources to be able to do that the demand for more complex transactions.
appropriately,” Tully says. “If an airline wants to hedge summer 2017, a
“We probably have a smaller team than other
“The players that remained through significant number of banks are willing to
banks, but because we have that specialist the cycle are now more important provide that – it’s easy to do. But if a client
knowledge due to our long history in the and command a higher recognition wants a five-year natural gas options structure,
market, we have clients across the spectrum and than before, when the market was not as many banks are capable of offering that
in every region. While our US client base is very any more,” he explains.
much geared towards institutional investor
oversupplied” Certainly, the rankings support the argument
clients, Asia-Pacific is more centred on the François Combes, Societe Generale that the dealers and brokers that have shown an
physical markets, particularly China,” she tells unwavering commitment to the commodities
Energy Risk. Increased complexity market through boom, bust and everything in
Societe Generale’s Combes agrees that, while Market participants say these demand trends between continue to be the most highly rated by
the market changed, work came back to those have lead to a steady flow of business, rather market participants.
that remained committed to commodities once than the avalanche seen in previous upcycles, “UBS has been in precious metals for close to
demand from hedgers and investors increased in which only encouraged an oversupply of a century, and so that is one thing that separates
2016: “The players that remained through the liquidity providers in some markets. As such, us from the crowd: our commitment to this
cycle are now more important and command a those organisations that exited commodities market,” says Tully. And as the top dealer in the
higher recognition than before, when the market before 2016 are generally viewed as unlikely to 2017 Energy Risk commodity rankings celebrates
was oversupplied. Liquidity was definitely lower return, at least not with the same intensity. 30 years in the commodities business this year,
in precious metals options, and therefore... there “The retrenchment that took place in 2013 Societe Generale’s Whitehead agrees that
was an increased reliance on a smaller number of and 2014 [reduced] the excess supply that maintaining this level of commitment is the key
providers to offer that service.” existed in this business. There were simply too to success in the global market. ■
How the poll was conducted
Between November 1 and December 16, 2016, re- any market. Instead, respondents vote according to a if they do not trade in the market in which they have
spondents to the Energy Risk commodity rankings sur- range of criteria including reliability, pricing, liquidity cast a vote. In addition, categories that do not attract
vey were asked to vote for their top three dealers and provision and speed of execution. enough votes are excluded from the final results.
brokers in any markets in which they had been active The rankings are also not designed to present the
over the previous year. views of a representative share of the commodity The methodology
The traders that participated were mostly concen- trading community, since the poll is open to any mar- In order to create the final list of rankings, Energy Risk
trated in the precious metals (26.8%) and natural ket participants, and the results could be influenced aggregates the results, weighting them by awarding
gas (26.1%) markets, as well as crude oil (23.3%), by the efforts of dealers and brokers to canvass their three points for first-place entrants, two points for
refined products (23.1%), base metals (21.9%) and clients for votes. second place and one point for third. The top firms in
power (20.5%). A number of other categories were However, the Energy Risk team makes every effort each market are then listed according to the percent-
also included in the poll, such as coal, freight, iron ore, to ensure that invalid votes are excluded from the fi- age of votes they have accrued, with the winners in
emissions and soft commodities. nal results. This includes instances where the same IP each category based on the total percentage of votes
The rankings poll is designed to reflect market address is used to cast multiple votes, when groups of per firm.
participants’ perception of a dealer or broker based employees from the same desk vote for the same firm, The overall rankings (Best overall dealer and Best
on the overall quality of service they offer their cli- or when one voter chooses the same firm indiscrimi- overall broker) are calculated by aggregating the
ents. It does not take into account volumes traded in nately throughout the poll. Voters are also excluded votes cast in the individual categories.
risk.net 3Best overall dealer Best overall broker
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 3 Tullett Prebon
2 – UBS 2 2 Tradition
3 5 JP Morgan 3 4 GFI Group
4 3= BNP Paribas 4 1 Icap
5 2 Bank of America Merrill Lynch 5 8 Marex Spectron
6 3= Goldman Sachs 6 6 Starsupply Commodity Brokers
7 10 Engie Global Markets 7 – Greenea
8 – Axpo Group 8 9 PVM
9 6 Citi 9 7 BGC Partners
10 – TD Securities 10 – Freight Information Service
Energy – dealers Energy – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 4 Tullett Prebon
2 6 Engie Global Markets 2 2 Tradition
3 4= BNP Paribas 3 1 Icap
4 – Axpo Group 4 3 GFI Group
5 4= Goldman Sachs 5 6 Starsupply Commodity Brokers
6 9 JP Morgan 6 8 Marex Spectron
7 2 Bank of America Merrill Lynch 7 – Greenea
8 8 EDF Energy 8 7 PVM
9 10 Morgan Stanley 9 – Griffin Markets
10 7 Citi 10 9 BGC Partners
Oil and products – dealers Oil and products – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 1 PVM
2 6 JP Morgan 2 4 Tradition
3 3 Goldman Sachs 3 3 Tullett Prebon
4 4 BNP Paribas 4 6 BGC Partners
5 2 Bank of America Merrill Lynch 5 – Ginga Petroleum
6 7 Morgan Stanley 6 – Oil Brokerage
7 5 Citi 7 – LCM Commodities
8 8 BP 8 9 Marex Spectron
9 – Engie Global Markets 9 2 Icap
10 – UBS 10 – Freight Information Service
Natural gas – dealers Natural gas – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 2 Tradition
2 4 Engie Global Markets 2 1 Icap
3 5 BNP Paribas 3= 3 GFI Group
4 3 Axpo Group 3= 5 Tullett Prebon
5 2 BP 5 – Marex Spectron
6 9= Goldman Sachs
7 – JP Morgan
8 – Gazprom Energy
9 7 EDF Energy
10 6 Bank of America Merrill Lynch
4 risk.net February 2017Power – European market dealers Power – European market brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Axpo Group 1 4 Tullett Prebon
2 3 EDF Energy 2 3 Icap
3 2 Engie Global Markets 3 2 GFI Group
4 9 GEN-I 4 1 Tradition
5 8 Alpiq 5 5 Marex Spectron
6 6 RWE Group
7 4 Enel
8 – Societe Generale
9 – Edison Power Group
10 – Goldman Sachs
Precious metals – dealers Precious metals – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 UBS 1 6 GFI Group
2 2 Societe Generale 2 4 Tradition
3 3 JP Morgan 3 1 Icap
4 – TD Securities 4 – Phoenix
5 5 HSBC 5 – Premex
6 4 Credit Suisse 6 – Mint Partners
7 – Scotiabank 7 2 BGC Partners
8= – BNP Paribas 8 9 Sunrise Brokers
8= 6 Citi 9= – Scotiabank
10 – Morgan Stanley 9= – Amalgamated Metal Trading
10 5 INTL FC Stone
Base metals – dealers/brokers Research – overall
2017 2016 Dealer/broker 2017 2016 Institution
1 1 Societe Generale 1 1 Societe Generale
2 3 JP Morgan 2 7 Macquarie Group
3 4 BNP Paribas 3 10 JP Morgan
4 8= INTL FC Stone 4 4 Goldman Sachs
5 5 Goldman Sachs 5 – INTL FC Stone
6 8= Marex Spectron 6 5 Citi
7 7 Citi 7 6 BNP Paribas
8 6 Macquarie Group 8 2= Bank of America Merrill Lynch
9 – TD Securities 9 – Standard Chartered
10 – Triland Metals 10 – Marex Spectron
risk.net 5Oil – North America
WTI – dealers WTI – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 3 PVM
2 4 JP Morgan 2 – Marex Spectron
3 2 Bank of America Merrill Lynch 3= 2 BGC Partners
3= – Tradition
Other North American crudes – dealers Refined products – dealers
2017 2016 Dealer 2017 2016 Broker
1 3 Goldman Sachs 1 1 Societe Generale
2 4 Societe Generale 2 5 JP Morgan
3 5 BP 3 3= Goldman Sachs
Oil – Europe
Brent – dealers Brent – brokers
2017 2016 Dealer 2017 2016 Broker
1 2 BNP Paribas 1 1 PVM
2 1 Societe Generale 2 3 Tullett Prebon
3 – JP Morgan 3 – BGC Partners
Refined products – dealers Refined products – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 1 PVM
2 2 BNP Paribas 2 2 Tullett Prebon
3= 5 Goldman Sachs 3 – Tradition
3= 4 Morgan Stanley
Oil – Rest of World
Crudes – dealers Crudes – brokers
2017 2016 Dealer 2017 2016 Broker
1 – Societe Generale 1 – PVM
2 – JP Morgan 2 – Tradition
3 – Goldman Sachs 3 – Tullett Prebon
Refined products – dealers Refined products – brokers
2017 2016 Dealer 2017 2016 Broker
1 – Societe Generale 1 – Ginga Petroleum
2= – BNP Paribas 2 – Oil Brokerage
2= – JP Morgan 3 – BGC Partners
6 risk.net February 2017Biofuels
Biofuels – dealers Biofuels – brokers
2017 2016 Dealer 2017 2016 Broker
1 2 Gunvor 1 1 Starsupply Commodity Brokers
2 1 Cargill 2 2 Greenea
3= – Starsupply Commodity Brokers 3 – STX Commodities
3= – Saipol
3= 5 ADM
Natural gas – North America
Henry Hub – dealers Henry Hub – brokers
2017 2016 Dealer 2017 2016 Broker
1 3 Bank of America Merrill Lynch 1 3 Amerex Brokers
2 2 Societe Generale 2= 2 Icap
3 5= JP Morgan 2= – Tradition
Eastern US & Canada natural gas – dealers Eastern US & Canada natural gas – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 BP 1= – Icap
2 2 Societe Generale 1= 3 Tullett Prebon
3 5 BNP Paribas 3 – GFI Group
Western US & Canada natural gas – dealers Western US & Canada natural gas – brokers
2017 2016 Dealer 2017 2016 Broker
1 4 Societe Generale 1 2 Amerex Brokers
2 1 BP 2 3 Icap
3 – Morgan Stanley 3 – Tullett Prebon
risk.net 7Natural gas – Europe
NBP (UK) – dealers NBP (UK) – brokers
2017 2016 Dealer 2017 2016 Broker
1= 2 Engie Global Markets 1 – Marex Spectron
1= 5 BNP Paribas 2 1 Tullett Prebon
3 4 Goldman Sachs 3 3 GFI Group
TTF (Netherlands) – dealers TTF (Netherlands) – brokers
2017 2016 Dealer 2017 2016 Broker
1 2 Engie Global Markets 1 – Tradition
2 1 Societe Generale 2 2 GFI Group
3 4 BNP Paribas 3 1 Icap
Other European hubs – dealers Other European hubs – brokers
2017 2016 Dealer 2017 2016 Broker
1 – Engie Global Markets 1 – Tradition
2 – Societe Generale 2 – Icap
3 – Axpo Group 3 – GFI Group
Power – Europe
UK – dealers UK – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 EDF Energy 1 – Tullett Prebon
2 2 Engie Global Markets 2 1 Icap
3 – SSE Energy Supply Limited 3 3 GFI Group
Germany – dealers Germany – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Axpo Group 1 – Tullett Prebon
2 3= EDF Energy 2 2 Tradition
3 2 RWE Group 3 1 GFI Group
France – dealers France – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 EDF Energy 1 – Tullett Prebon
2 2 Engie Global Markets 2 1 GFI Group
3 3 Axpo Group 3 – Marex Spectron
8 risk.net February 2017Power – Europe continued
Italy – dealers Italy – brokers
2017 2016 Dealer 2017 2016 Broker
1 2 Enel 1 – Tullett Prebon
2 1 Axpo Group 2 1 Tradition
3= 3 Edison Power Group 3 3 Icap
3= 5 Engie Global Markets
Netherlands – dealers Netherlands – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Axpo Group 1 – Tullett Prebon
2= 4 E.on Energy 2 – Icap
2= 2 Engie Global Markets 3 – GFI Group
2= 3 RWE Group
Belgium – dealers Belgium – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Axpo Group 1 – Tullett Prebon
2 2 Engie Global Markets 2 – GFI Group
3 3 EDF Energy 3 – Icap
Spain – dealers Spain – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Axpo Group 1 2 Tullett Prebon
2 2 Endesa 2 1 ICAP
3 4 Engie Global Markets 3 – Grupo CIMD
Eastern Europe – dealers Eastern Europe – brokers
2017 2016 Dealer 2017 2016 Broker
1 2 GEN-I 1 1 Tradition
2 – Engie Global Markets 2 – Tullett Prebon
3 – EDF Energy 3 2= GFI Group
Coal
Coal – dealers Coal – brokers
2017 2016 Dealer 2017 2016 Broker
1 3 Bank of America Merrill Lynch 1 1 GFI Group
2= 1 BNP Paribas 2 – Tullett Prebon
2= – Goldman Sachs 3 2 Icap
risk.net 9Weather
Weather – dealers
2017 2016 Dealer
1 1 Endurance Re
2 3 Swiss Re
3 – BNP Paribas
Freight
Freight – dealers Freight – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Bank of America Merrill Lynch 1 – Freight Investor Services
2 3= Citi 2 1 Clarksons
3 – Goldman Sachs 3 3= SSY Futures
Emissions
Emissions – dealers Emissions – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 CF Partners 1 1 Evolution Markets
2 3 Vertis 2 2 Tradition
3 4 Commerzbank 3 – PVM
Soft commodities
Soft commodities – dealers Soft commodities – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 Societe Generale 1 – Newedge
2 3 JP Morgan 2 1 INTL FC Stone
3 5 Bank of America Merrill Lynch 3= 3 Marex Spectron
3= – Volcap Trading
10 risk.net February 2017Precious metals
Gold – dealers Gold – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 UBS 1 – GFI Group
2 2 Societe Generale 2 2 Tradition
3 3 JP Morgan 3 1 Icap
Silver – dealers Silver – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 UBS 1 – GFI Group
2 2 Societe Generale 2 3 Tradition
3 4 JP Morgan 3= 1 Icap
3= – Premex
Platinum and palladium – dealers Platinum and palladium – brokers
2017 2016 Dealer 2017 2016 Broker
1 1 UBS 1 – GFI Group
2 2 Societe Generale 2= – Premex
3 3 JP Morgan 2= – Tradition
Iron ore
Iron ore – dealers Iron ore – brokers
2017 2016 Dealer 2017 2016 Broker
1 – Bank of America Merrill Lynch 1 – Freight Investor Services
2 1 Goldman Sachs 2 1 GFI Group
3 4= Citi 3 – SSY Futures
Base metals
Copper Aluminium
2017 2016 Dealer/broker 2017 2016 Dealer/broker
1 1 Societe Generale 1 1 Societe Generale
2 4 JP Morgan 2 3 JP Morgan
3 – BNP Paribas 3 4 BNP Paribas
Nickel
2017 2016 Dealer/broker Zinc
1 1 Societe Generale 2017 2016 Dealer/broker
2 4= JP Morgan 1 1 Societe Generale
3 4= Goldman Sachs 2 4 JP Morgan
3 – INTL FC Stone
Lead Tin
2017 2016 Dealer/broker 2017 2016 Dealer/broker
1 1 Societe Generale 1 1 Societe Generale
2 5= JP Morgan 2 – JP Morgan
3 3 BNP Paribas 3 – INTL FC Stone
risk.net 11Research
Research in North American oil and products Research in European oil and products
2017 2016 2017 2016
1 1 Societe Generale 1 1 Societe Generale
2 2= Goldman Sachs 2 2 Goldman Sachs
3 2= Bank of America Merrill Lynch 3 – BNP Paribas
Research in biofuels Research in North American natural gas
2017 2016 2017 2016
1 1 Prima Markets 1 1 Societe Generale
2 2 Greenea 2 5= JP Morgan
3 – Argus Media 3 2 Bank of America Merrill Lynch
Research in European natural gas Research in European power
2017 2016 2017 2016
1 1 Societe Generale 1 1 Societe Generale
2 2 Engie Global Markets 2 2 Axpo Group
3= 4 Axpo Group 3 3 Engie Global Markets
3= 3 Goldman Sachs
Research in coal Research in freight
2017 2016 2017 2016
1 1 Societe Generale 1 – Clarksons
2 3 Macquarie Group 2 – Bank of America Merrill Lynch
3 – Citi 3 – SSY Futures
Research in emissions Research in soft commodities
2017 2016 2017 2016
1 5 Vertis 1 1 Societe Generale
2 1 Societe Generale 2 – JP Morgan
3 – CF Partners 3= – Citi
3= – Rabobank
Research in precious metals Research in iron ore
2017 2016 2017 2016
1 1 UBS 1 – Goldman Sachs
2 2 Societe Generale 2 – Macquarie Group
3 – TD Securities 3= – Bank of America Merrill Lynch
3= – Citi
Research in base metals
2017 2016
1 1 Societe Generale
2 3 Macquarie Group
3 – JP Morgan
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