BarCap: CDB link will yield commodity opportunities

The £1.5 billion stake taken in Barclays by the state-owned China Development Bank (CDB) will help spur the two banks’ expansion in Chinese commodity derivatives, according to Benoit de Vitry, Barclays Capital’s London-based global head of commodities, emerging market rates and quantitative analytics.

In an exclusive interview, de Vitry said BarCap would continue to build its commodity derivatives business in China while also aiding CDB in its operations, noting that the Chinese commodity derivatives market presented an exciting opportunity for the bank. “China is a relatively untapped market but a very large one. It’s a very interesting place because big Chinese companies are, by and large, among the largest trading companies and among the largest producers or users of commodities.”

Since 2000, China has been responsible for more than 70% of global demand growth for coal, 60% of global demand growth for steel, and more than 50% of global demand growth for aluminium, according to BarCap research.

“The use of risk management tools is well-established and well-understood. However, compared with other geographies, they tend to be shorter-term and fewer products are used,” said de Vitry. He speculated that increased involvement by the CDB in the commodity derivatives market could alter the country’s regulatory approach to the sector.

“China's regulation and legal framework around derivatives has evolved over the past few years and I am sure that to have market participants like CDB in commodity derivatives will continue, and even strengthen, that evolution.”

Barclays announced CDB was to take a £1.5 billion (3.1%) share in the bank in July. Its investment came at the same time as the Singapore government-owned investment vehicle Temasek bought a smaller £1 billion (2.1%) stake. They have pledged a further £5.1 billion and £1.5 billion, respectively, if the company’s takeover bid for Dutch bank ABN Amro succeeds.