Citi faces headwinds in commodity trade finance, presses on with expansion

Mon Jun 15, 2015 11:21am EDT
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By Eric Onstad and Anjuli Davies

LONDON (Reuters) - Citigroup Inc (C.N: Quote) and rivals in the commodity trade finance sector are facing headwinds of weak oil prices, sanctions on Russia and stiff competition, which have pressured fees.

The U.S. bank, which launched its business in the sector three years ago, has shifted attention from China, where fees are weak, to Africa and Latin America, said Kris van Broekhoven, global head of commodity trade finance.

"It's still a tough environment," he told Reuters.

"China is not an easy market. It's very competitive and pricing is low. We want growth, but not at any cost."

Citi started off with oil, added metals last year and plans to include agricultural commodities by the end of 2015.

The bulk of its business has come from financing deals with big trading houses and this is being expanded to include the next tier of mid-sized traders, Van Broekhoven said.

But the sharp drop in oil prices means that the value of business in the sector available for financing has tumbled.

"For the same number of barrels, for the same cargos that move from one place to another, the value is half of what it was before," he added.   Continued...

A view of the exterior of the Citibank Corporate headquarters in the Manhattan borough of New York City, May 20, 2015.  REUTERS/Mike Segar