Amid a Price Bloodbath, BTG Commodities Trading Unit Thrives

  • Raw material push makes bank one of Brazil's top exporters
  • BTG's commodity shipments already surpassed $1 billion in 2015

As trading houses like Glencore Plc and Noble Group Ltd. try to navigate the aftermath of a commodities price bust, a new competitor is emerging from Brazil: Grupo BTG Pactual.

In less than two years, the investment bank led by Andre Esteves has become one of the country’s largest exporters, trading raw materials including soybeans and corn. The billionaire is starting to make good on a promise to turn his firm into a commodity powerhouse as other banks left the business amid tougher regulations. In the first nine months of the year, BTG exported more than $1 billion in Brazilian raw materials, up from nothing when Esteves made the pledge during an interview in Davos in early 2014.

In September, the bank more than tripled commodities sales, while the country’s top exporter Vale SA saw a 46 percent decline in revenue as iron-ore prices collapsed, according to the latest data compiled by Brazil’s department of trade. Bunge Ltd., one of the largest agricultural processors and traders, saw exports fall 22 percent last month in Brazil. Bunge is the country’s third-largest exporter.

Part of the key to Sao Paulo-based BTG’s success is that the bank is homegrown in the South American nation, which supplies the world with grains, oil and metals.

Being in a country like Brazil “is a huge advantage when you are able to speak the local language, understand the local environment and see what are the difficulties in doing business in the market,” said Joao Paulo Dos Santos, a director at Brazil Commodities, a London-based trader of Brazilian products including sugar, chicken and precious metals. “The international banks don’t understand the culture of the place, how business is done on the ground.”

The bank has also focused its business model in trading, without seeking to control production or distribution assets or providing liquidity to the market.

“It’s a light business in terms of the balance sheet, we don’t have terminals, ports, railways, ” Joao Dantas, BTG’s investor relations director, said in an interview earlier this year. “We are intermediaries. We buy the physical commodity and sell the physical commodity. We do hedging, physical and financial trading. We don’t have inventories."

BTG shares have lost 1.1 percent this year through Thursday. That compares with a 55 percent slump by Singapore-listed Noble amid criticism from a group calling itself Iceberg Research and investor concern that slumping raw material prices would hurt its business. Glencore shares have tumbled 61 percent in the same period as the commodity rout squeezes margins at its mining operations and pushes up credit costs. BTG shares rose 2.4 percent to 28.50 reais as of 10:51 a.m. in Sao Paulo.

BTG has more than 40 desks dedicated to commodities, including offices in Shanghai, Singapore and Kiev, according to a second-quarter presentation, with about 400 employees working in the unit. Commodities already represents about a third of the revenue generated by the bank’s sales and trading business, which totaled 1.48 billion reais in the first half of 2015, or about $377 million at today’s exchange rate. 

The banks’s commodities unit ranked 25th amid Brazil’s largest exporters in September, up from 79th at the end of 2014, according to the department of trade’s data. Brazil is the biggest exporter of sugar and coffee and is looking to overtake the U.S. in soybean shipments.

“We are close to the producers so we understand them and do a lot of research on weather, supply and equipment costs, transportation and logistic hurdles,” Dantas said.

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