I am often told that it is unsustainable for a law firm to specialize in just commodities. But these naysayers don’t understand the breadth and depth of this market – our Highlights of 2021 in the next pages are testament to that. Commodities are so much more than just the selling and buying of raw materials. It is a microcosm of the socio-economic changes in the world and the heartbeat of the financial world. Our 4 observations for the commodities market in 2022, comes from our diverse involvement in the many aspects of the commodities market. I hope you will find these insights useful. The Price Hangover: 2021 was the banner year for commodities as prices hit new records in a ravenous post-pandemic world. Energy commodities defied all expectations by not just surviving but by thriving as the world desperately turned to demonized fossil fuels in an energy crisis suggesting a continued role for coal and oil. Green energy initiatives on the other hand continue to gain momentum in parallel, increasing demand for copper, nickel and lithium used in batteries and electric cars. At some point in 2022 however, the champagne will stop flowing on commodity prices as capacity catchesup to demand. And then the hangover will ensue – defaults and litigations. All too often, contracts done in the exuberance of a rising market, do not have sufficient legal protection to take into account the sobering consequences of a price drop. Being legally prepared will ease the hangover when it comes. Chasing Liquidity in an Opaque World: We continue to be heavily involved in trade fraud and double financing cases which came to the forefront with the high-profile collapses of 2020. The addiction to liquidity at the heart of most trade fraud schemes, cannot be eradicated overnight. But removing the conditions that allow it to flourish – the archaic use of paper documents, might be the best solution to putting an end to this problem. In that regard, I am pleased to to be involved in the SGTraDeX project in Singapore as the Government and the private sector have come together to ambitiously create a data sharing infrastructure that would streamline fragmented information flows and hopefully eliminate double financing that is notoriously difficult to detect in commodities trading. Alternate Lending & Securitization: The prevalence of trade frauds, Basel regulations and the labour intensiveness of invoice financing, have led many traditional banks to exit commodities finance and pave the way for alternate lenders to expand market share. With record commodity pricing, investors have returned to the sector, investing in tech enabled companies that promise greater efficiency. Commodity portfolios, wrapped with credit insurance are securitized and sold to investors. In the pursuit of scale, credit insurance has allowed portfolios to reach astronomical values but with an often-mistaken belief that credit insurance will act as a guarantee – as a risk substitute rather than as a risk mitigant. This can have disastrous consequences. Just ask Lex Greensill. ESG & Carbon Credits: Climate change and ESG goals are increasingly gaining prominence but the lack of clarity around them continues to confuse board directors. One aspect of ESG that will undoubtedly be the next trading business of the future is carbon trading. Singapore is once again at the forefront of this opportunity as it develops a carbon trading exchange for high-quality carbon credits. As an established commodities trading hub, Singapore is certainly well positioned to develop an exchange but there are challenges from a lack of uniform practices on how such credits are created, verified and valued. As commodities lawyers, our skill sets are naturally transposable to this exciting area of supporting companies in making voluntary carbon credits a part of their ESG transition. I wish you a wonderful 2022. Baldev Bhinder Email: baldevbhinder@blackstonegold.com
Our clients are the world’s largest MNCs including mining companies, oil conglomerates and trading houses with head offices listed in Australia, Europe, India and China. We advise traders in metals, minerals and softs on their operations across the world and advise lenders, insurers and borrowers on power, trade and investment structures, defaults and investigations. Bangladesh Power Producer Listed Australian Mining Group Listed European Energy Co. Middle East Oil Producer Japanese Oil Trader Global Trade Finance Banks National Oil Comnpany Norwegian Maritime Contractor European Invesment Fund Chinese Metals Trading House Global Oil Producer/ Trader Indian Steel Producer London Credit Insurer Listed Bangladesh Steel Co. Listed Agri Commodity Trading House Australian Steel Producer European Credit Insurer Swiss Trade Finance Fund Trade Finance Fund SG Coal Traders
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