Charting Asean's growth in commodity trade finance

AS THE world recovers from the Covid-19 pandemic which had disrupted supply chains and derailed economic growth, Asean's strong economic recovery is expected to drive the energy and commodities sectors in the region. Even amid the pandemic, there are pockets of resilience in Asean, as leading commodity players bounce forward and rejig their strategies to capture emerging opportunities in the region.

"The trend of commodity prices is a leading indicator of economic change," says Lim Chen Chen, UOB Group Head of Structured Trade and Commodity Finance. Driven by geopolitical dynamics as well as shifts in demand and supply, many of the bank's clients have started to move beyond their traditional trading activities and expanded their operations to include logistics and manufacturing.

"We have seen the re-emergence and growth of intra-regional trade arising from geopolitical trade tensions and supply chain disruption," says Lim.

Asean is now China's largest trading partner, with trade volumes up about 38 per cent year-on-year in the first half of 2021.

With its extensive regional network and long history of deep expertise in physical commodity trade financing, UOB is well placed to help its clients chart their next stage of growth in the region.

As lenders, banks continue to play a strategic role in this space, particularly in a time of uneven economic recovery.

"Our role is in identifying the segment of the value chain in which we can play an active role to provide value-add to our clients. We work with clients to mitigate the risks and navigate through regulatory changes and unprecedented market events that can cause supply chain disruptions," says Lim.

Through sector specialisation and expertise, UOB has been able to support its clients through advisory and customised finance solutions, thereby facilitating their physical strategic commodity trade flows and enhancing their trading capabilities.

These clients, which the bank sees as close partners, include producers/refineries/steel mills, state-owned enterprises, global and large-sized trading houses, and independent specialised traders across the energy, agriculture and metal industries.

To leverage the expansive market opportunities in Asean, the bank collaborates with these clients to help expand their regional footprint. One example would be China's Tsingshan Group, which the bank has supported over the years to enable trade connectivity between China and the Asean region.

UOB is also active in supporting clients in their mergers and acquisitions across the region.

As the financial adviser and sole financier for BRC Asia Limited's acquisition of Lee Metal Group, UOB had helped its client gain a competitive edge through the merger.

More recently, the bank was the sole financier of Zenith Steel's acquisition of Natsteel Holdings Pte Ltd. This strategic acquisition will enable the company to diversify its production base beyond China and leverage Singapore as a platform for production and distribution of steel into Asean, says Lim.

Singapore's oldest steel mil, Natsteel, can ride on Zenith Steel's deep steelmaking capabilities to scale up efficiently to cater to both the domestic and regional markets in Asean. Given Natsteel's competitive advantage and Zenith Steel's track record of operating a profitable steel mill group in China, the acquisition will generate business synergies and greater cost efficiency for the combined group, says Lim.

For the non-ferrous metals players, products such as the yuan-denominated international bonded copper futures launched in November 2020 on the Shanghai International Energy Exchange promote deeper integration of China's domestic and overseas supply chain for copper. This enhances risk mitigation for the ecosystem. To help clients leverage this, UOB has developed financing solutions for established players such as Lobb Heng Pte Ltd and continues to engage its non-ferrous metals clients to enable them to trade more optimally.

"As economies gradually reopen, we are actively supporting companies in their pursuit for growth, cross-border expansion and to build their presence in Asean, leveraging on UOB's strong Asean footprint and capabilities," says Lim.

In today's increasingly digital era, the bank recognises that technology plays a critical role to uplift commodity trade financing, including in areas such as enhancing productivity, connectivity and risk management. Technological solutions will go a long way in helping financial institutions process high volumes of transactions more efficiently and effectively and, at the same time, manage the increased complexity and risks from cross-border trade financing.

"The shift to sustainable supply chains is well underway in Asean and this will in turn translate to new opportunities for green trade financing for commodities," says Lim.