Singapore structured commodity financing is split into three main commodity groups: metals & mining, energy, and soft commodities. SCF is a financing approach adopted by a number of different businesses, primary producers, trading houses and lenders. Commodity producers stand to benefit from structured commodity financing by receiving financing to ensure cash flow is available for maximum output with the aim of repaying the loan once exports begin.
What is a Commodity?
Commodities today include a range of basic energy sources, foodstuffs and precious metals, and are traded on the world commodity market under strict regulations. Commodities specific to exchange are traded using one universal currency, irrelevant of where the commodity trader is buying from or selling to. This is to avoid a confusing conflict between what is being traded, and the exchange rates of different currencies.
The commodity market is made up of exchanges where contracts for commodities are bought and sold. ‘Commodity’ means physical goods in their raw form that are bought and sold at such exchanges. Corn, aluminium, natural gas, RBOB gasoline and frozen concentrated orange juice are all examples of commodities that are traded.
How did Commodity Financing work
Commodity financing is a form of loan that is a part of trade financing. The financing is done across three main parts, metals, and energy and soft commodities.
Producers utilize such kind of structures to get capital to face favourable output with cash flow from lenders. Repayments are only made when exports are done.
With more trade financing options available, traders are able to explore new markets and also new forms of commodities.
The trades where the products are held by the trader are used as security in case trades collapse or the structure breaks down. This is to mitigate risk for financiers.
Due to the latest high-class cases of fraud and loss of hunger in financing commodity traders, many big giants have left the Singapore markets.
That’s the reason for pressure in the Singapore commodity trade financing sector. Many businesses that used to have good access to the financing and lines for commodity trades are facing tough times and difficulties financing their needs.
Avant Consulting deals closely with a commodities banker with close to a decade of Commodities financing background and is able to help you in obtaining the financing that you need to grow your business in the Commodities trading market.