Precious metals house of the year: BNP Paribas

Energy Risk Asia Awards 2021

ERAA21-Winner-web

BNP Paribas secures the Precious metals house of the year award at the Energy Risk Asia Awards 2021

With a global commodity derivatives division of more than 100 sales, trading and structuring team members, and nearly 20 staff in Asia‑Pacific (Apac), BNP Paribas is one of very few banks that can offer financing and risk management solutions to corporate and institutional clients whose businesses are highly correlated to commodities prices across a full array of markets. These include not just the standard crude oil, gold and base metals markets, but also more diverse market sectors, such as Japanese power, options on JKM (Japan/Korea Marker), European emissions allowances, freight and platinum group metals.

“This breadth of expertise is combined with our willingness to be at the forefront of developing markets such as China, as well as our diverse range of investment products and innovative technologies such as Cortex CD – our online cross-commodity trading platform that offers a range of hedging solutions – and, as a result, our clients highly value our ongoing partnership and wide-ranging capabilities,” says the bank. 

For precious metals specifically, BNP Paribas has been able to seamlessly service an ever-growing client base in Apac, given its position as a primary market-maker for precious metals in the region. The robustness of its precious metals market offering was underlined during the height of the Covid‑19 pandemic in 2020. As liquidity dried up and volatility picked up, BNP Paribas was one of the few banks to provide competitive markets in precious metals forwards in the Asian time zone. Indeed, during this period, several large funds and other financial institutions turned to BNP Paribas to swap their precious metals holdings into their funding currency to be able to better manage their liquidity situations. 

“The commodity derivatives team in Apac saw exceptional activity in the structured space over the past 18 months, with client activity in one-off and large complex trades nearly increasing threefold in 2020, compared with 2019,” says the bank. “So far in 2021, within the precious metals space the team has closed two of the largest structured transactions done by the bank globally, and our client activity for this year has already surpassed the high watermark set by our full-year performance in 2020.”

Despite this success, BNP Paribas has continued to expand its product offerings in the precious metals markets and its geographical reach in Apac. Notably, for example, it has seen increasing interest from its expanding customer base in rhodium, and it is one of a very limited number of banks that acts as a market-maker for this metal. Additionally, in 2020 the bank kick-started its precious metals leasing activities in Apac, yielding substantial results for it, especially with its client base in Japan.

BNP Paribas also continues to expand its presence in key target market China by expanding trading and market-making capabilities to onshore markets, and providing liquidity and solutions to its clients. Highlighting the agility of the bank to nimbly deal with unusual market challenges, a dislocation between onshore China gold prices on the Shanghai Gold Exchange (SGE) and offshore US dollar prices was observed in 2020 as the China gold market went into a steep discount when historically it has traded at a premium to offshore prices. 

“Our unique ability to trade both onshore SGE gold as well as the offshore gold underlying on the Comex and on the London Bullion Market Association allowed us to offer our clients a uniquely packaged product that allowed them to gain exposure to this spread,” says the bank. 

Gold was also the focus of three highly significant structured hedges undertaken by BNP Paribas in just the last 18 months, distinguished both by their large size (since the start of 2020, it has been involved in deals that required clients to execute hedges to protect forward revenues from gold production to the tune of over $400 million) and by their long tenor (spanning as far as five years forward). 

Underlining the bank’s position as a market leader in the region for precious metals trading as well as banking products, it efficiently designed strategies to execute transactions of this size and tenor in a transparent manner and on the back of project finance facilities to deliver all-in-one customised packages to core metals and mining clients. 

One of the trades was when gold reached new highs in 2020 and a BNP Paribas client needed to protect the value of their future production while, at the same time, access cheaper funding solutions when liquidity for funding was tight. The prepaid swap solution to this situation that was designed by BNP Paribas provided the client with a hedge for a portion of its gold hedges over one year and allowed it access to upfront funding under an existing security arrangement with the company. The structure was cost-effective as credit charges could be optimised by packaging the hedging and lending needs into the same trade. The client was even able to access funds at a rate cheaper than the cost of some of their existing lending facilities in place.

BNP Paribas’ award of Precious metals house of the year at the Energy Risk Asia Awards 2021 reflects the bank’s depth and breadth of its expertise, products and trading capabilities in the commodities space in general, and in the precious metals sector particularly, in the region and its desire to open and expand into new market opportunities to the benefit of its clients.

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