According to Bloomberg News, JP Morgan Chase & Co is reviewing its business with a few commodity clients following the short nickel crunch of last month. This move threatens to siphon out more liquidity out of this sector.
More on the commodity exposure review
The senior management at JP Morgan has urged its teams across the globe to carry out fresh due diligence on a few prevailing clients, which also includes metal traders and oil refiners, as per people that are aware of the matter. On certain financing functions, risk assessments are also being carried out, as stated by a few people who were not willing to be identified.
The US bank occupies one of the top places in the global commodity markets and metals, and it is the biggest by far. It has been an active central partaker in the nickel price surge that was found rocking the London Metal Exchange last month, being the greatest counterparty of Tsingshan Holding Group Co., the largest metal producer across the globe center of a crunch.
Amidst heightened volatility in the market, JP Morgan was keeping a tab and adjusting its commodities exposure already before the squeeze in nickel short, as per another individual who is familiar with the bank’s position. Since early March, when the spike in nickel price took place, the bank has been carrying out deeper reviews, said the person familiar with the situation.
The review is embracing every client across the commodities business of JP Morgan. It focuses on base metals and those businesses relevant to trading on London Metal Exchange, Bloomberg News reports. One of the issues that are being considered by the bank is carrying out a stress test of its business for the unexpected shocks that occurred, like the one that was caused by nickel.
It is not being assumed the review’s outcome, but JP Morgan might likely scale down its activities related to commodities following the same. The lender has already reduced exposure to the nickel market, said the people. For new financing deals, it is seeking additional approval from the management.
The commodity sector was rocked by a short nickel squeeze, and the LME stated that this led to a “systemic risk” to market conditions. In response to the same, a few of the banks temporarily halted commodity financing in Asia at the beginning of the last month, as per physical traders based in China and Singapore who would have borrowed from banks that were affected. There are a few traders that still are not able to get access to financing from these banks, and this also includes JP Morgan the reason that has been cited is that lenders have been reviewing their commodity business set up, as per Bloomberg News.
