(Bloomberg) -- The world’s biggest banks are heading for their worst year in commodities trading since before the pandemic as years of lucrative volatility ease off.
More than 250 firms including Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. are forecast to see combined net revenues of $10.6 billion in 2024, shaving nearly a fifth off of last year’s total, according to data compiled by Coalition Greenwich, one of the top data providers on Wall Street. Market turbulence has subsided after Covid-19 restrictions and Russia’s invasion of Ukraine shredded supply chains and triggered whipsaw price moves.
The trading boom “is now fading,” said Angad Chhatwal, head of global macro markets at Coalition Greenwich, which estimates revenue will slip a further 3% in 2025. “Since the pandemic, we have seen a revenue supercycle for commodities desks at banks, which has started to come off in the past six-to-eight quarters.”
Commodity trading houses like Gunvor Group, Glencore Plc and Trafigura Group reported lower trading profits in the first half of the year. Still, levels across the wider industry are higher than in 2012 to 2019, when revenues were consistently around $5 billion to $8 billion, according to Coalition’s data.
Banks — like trading houses and hedge funds — have beefed up their commodity trading units to take advantage of volatility and as clients looked to hedge off-exchange in over-the-counter deals to avoid margin calls when prices swing.
Such moves are paying off for some. Bank of America Corp. outperformed its peers in commodities this year, and in the third quarter revenue from the business increased in line with the wider fixed income, currencies and commodities unit, which rose 12%, according to George Cultraro, the firm’s global head of commodities trading. He attributes this partly to investment in Asia and in its hedge fund business in the US, Europe, Middle East and Africa. “The investment has worked out well,” he said in an interview.
The bank profited from oil and gas market turbulence in July through September in Europe and the US, he said. Bank of America is now looking to invest further in Asia Pacific and Europe as it expands opportunities in global gas and metals.
Representatives for Citi, Goldman, Morgan Stanley and JPMorgan declined to comment on the downturn.
Citi has added six members to its North America commodities desk in the past 12 months and remains committed to the business, according to a person familiar with the matter who isn’t authorized to speak publicly. The hires include traders and originators and come from firms including Goldman, Morgan Stanley and Bank of America, the person said.
Ken Griffin’s investment firm Citadel has defied the slump and generated about $4 billion this year, putting it on track to rival last year’s performance.
While opportunities driven by high volatility have faded, commodity desks continue to focus on the long-term transition to more sustainable energy, Chhatwal said. “We see this trend attracting investor interest also from the buyside, who are adding resources and headcount,” he said.
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