Sumitomo to Boost Overseas Commodity Staff as Demand for Hedging Climbs

Date: Friday, May 14, 2010
Author: Bloomberg

Sumitomo Corp. Global Commodities Ltd., a London-based unit of Sumitomo Corp., plans to boost its staff by 28 percent within two years to meet increased demand for hedging commodity risk.

The unit of Japan’s third-largest trading company, which opened in April 2006, will add seven traders and marketers to its current staff of 25, Koichi Iwanaga, general manager of Sumitomo’s commodity business department, said in an interview. The company is also studying new products linked to iron ore, after the price-setting process changed recently, he said.

Copper has jumped 59 percent in the past year and oil is up 31 percent on demand led by China. Gold has climbed 13 percent this year following nine straight annual gains and reached an all-time high on May 12. Sumitomo joins Mitsubishi UFJ Financial Group Inc. in expanding their raw-material hedging business.

“The need for risk hedging has been increasing at home and abroad amid high volatility in prices and volumes, especially after the collapse of Lehman Brothers,” Iwanaga said.

Global commodities assets under management increased $12.5 billion to a record $294 billion last month, mostly because of price appreciation, Barclays Capital said. Fresh inflows from investors contributed $4.3 billion of the total growth, Amrita Sen, an analyst at the bank in London, said May 11. About half of the new investment, some $2.2 billion, went into index- tracking funds, she said.

Staff Expansion

Mitsubishi UFJ Securities International, a unit of Japan’s biggest bank by market value, may boost its staff in London by 25 percent this year, Tetsuro Kono, who heads the commodity derivative group, said April 27. The company wants to focus on derivatives related to energy and base metals through its parent-bank network, he said.

Citigroup is also boosting its commodities business over the next three years with plans to increase staff by about 40 percent. Citigroup will add about 100 employees to the commodities unit of 235 as last year’s sale of Phibro LLC allows the bank to expand its business in raw materials, Danielle Romero-Apsilos, a company spokeswoman, said March 4.

Vale SA, the world’s largest iron ore producer, and BHP Billiton Ltd. ended a 40-year system of setting annual prices by signing short-term contracts with Asian steel producers, with the Brazilian company winning a 90 percent increase for the quarter started April 1.

New Products

“With the change to a quarterly price setting system, the need for risk hedging has been increased among steel mills,” Iwanaga said. Economic recovery in Asia will help expand its overseas business and Sumitomo is studying development of new products linked to iron ore, he said.

The unit has 15 traders and marketers in London and the remainder in Singapore, New York and Houston. The Singapore office, which doubled its staff to six in 2009, plans to add one this year to tap rising demand from India, Malaysia, Thailand and the Philippines, he said.

The unit trades raw materials including crude oil, gas, gold, platinum, copper, aluminum and nickel. In Japan, Sumitomo plans to increase its staff to 20 from 18 currently, he said.

“We are planning to increase our overseas volume, or notional sales, as much as two-fold in this year,” Iwanaga said. To meet this target, “we are looking for talented traders and marketers who can work in our team,” he said.