Base metals house of the year: BNP Paribas

Energy Risk Awards 2022: Bank gives much-needed support to metals clients needing to decarbonise

Davide Collini, BNP Paribas

Price volatility spiked across the commodities complex during the last year, coming to a crescendo in the first quarter of 2022 in certain markets following Russia’s invasion of Ukraine. In the nickel sector, concerns about supply of the metal – which is used for stainless steel and electric vehicle batteries – caused prices to double on March 8, 2022. In an unprecedented decision, the London Metal Exchange (LME) cancelled all transactions that day and suspended nickel trading for a week.

BNP Paribas was able to continue operating as normal in the nickel market, according to Davide Collini, metals macro sales EMEA at BNP Paribas, with only minor disruptions during the week that trading in the metal was suspended.

“Of course, there were a few days with no official price when we had to find an alternative settlement price, but P&L was fine and there has been no impact in terms of how BNP Paribas will continue to operate from a risk management perspective,” Collini says.

The bank’s focus has instead been the green transformation of its base metals business, he maintains, adding: “Metals will play a key role in a green economy, and we want to help the industry to move away from polluting or environmentally damaging areas.”

Aside from the reputational and regulatory risk management aspects of such a move, Collini points out that the link between financing and green credentials is rapidly strengthening. “Capital charges and funding rates are going to be a lot more expensive for businesses that are not considered sustainable,” he says. “So, it’s not just that we want to do this, but we are approaching a situation where all businesses will have to seriously consider this issue or see an increased cost of doing business. It’s better to position for this now.”

BNP Paribas has made several market-leading moves in this respect over the last year. In February 2022, for example, the bank closed its first cobalt trade with an automotive manufacturer. “Essential materials for electric vehicle battery production like lithium and cobalt were among the top performing markets as EV sales continued to grow in 2021,” Collini explains. “BNP Paribas’ commodity teams were able to meet this increase and support clients looking to trade these products.”

Metals will play a key role in a green economy, and we want to help the industry to move away from polluting or environmentally damaging areas

Davide Collini, BNP Paribas

While overall trading volumes in cobalt remain subdued, Collini expects interest to continue to pick up as the energy transition becomes an increasingly pressing concern for organisations. “Even a quite-active metal market like aluminium took three years to generate reasonable levels of liquidity,” Collini says, adding that encouraging producers to participate in the market tends to be the key to unlocking greater trading volumes.

Indeed, the bank has been working with large producers and consumers in other metals markets to help generate interest in, and build an understanding of, financial risk management strategies. BNP Paribas employees actively engaged with important industry committees, such as the LME Steel Committee, are helping to develop the market for the benefit of the industry and clients such as utilities and manufacturers of turbine parts.

BNP Paribas makes markets in all actively traded financial steel contracts listed on both LME and CME, and saw its total turnover in US dollars traded rise 445% between 2020 and 2021, according to Collini. “With the cost of steel at record levels in North America and well above historic averages in the other key markets of China and Europe, our commitment both to this sector and to the ferrous suite offering will remain a key support for this industry,” he says.

Highlighting the bank’s continued commitment to the base metals market, Collini adds: “It is important to move resources to these kinds of hedging activities now because we hope to keep playing a key role in these relationships for years to come.”

BNP Paribas has also invested in its research function with the addition in September 2021 of senior metals strategist David Wilson, a nearly 20-year veteran of the metals markets. “This investment in research will help our traders and give our clients an edge,” Collini says. “And, more generally, BNP Paribas is positioned as a European bank with a strong franchise. Following Brexit, this puts us in a good position for key metals markets, as does our focus on the energy transition.”