Commodity trading promotes the Lugano ‘brand’ worldwide
LCTA’s round table focused on the challenges and opportunities of an activity that is filling the gap left by the bank sector
The round table organized by Lugano Commodity Trading Association (LCTA) and chaired by Ticino Welcome chief editor Eduardo Grottanelli De’Santi to take stock of the sector’s evolutions and of its role in the Canton economy was entitled “Lugano trading commodity capital”.
“The tax revenue of this sector not only fills the gap of the bank segment, but it also generates qualified employment and significant satellite activities, besides promoting the Lugano 'brand' worldwide”, Municipality of Lugano Economic Development Department representative Piero Poretti observed.
LCTA secretary general Marco Passalia emphasized the development of the sector with both historical and new figures from Italy, Eastern Europe and Asia, dealing with precious and non-precious metals, coal, oil and natural gas, various metals, as well as the shipping industry.
“LCTA carries out training, lobbying, promotion and networking activities, but Lugano is competing both with the other two Swiss cities trading in raw materials, i.e. Geneva and Zurich, and with world’s giants such as London, Singapore, the Texan centres or Dubai. The synergy with banking structures and other advanced services suppliers is essential but, also in this case, the reorganization of private banking occurred in Lugano resulted in the relocation of decision-making centres and of desks specialized in trade financing. Many of them moved to Zurich or Geneva, others remained, such as UBS and Cornèr Banca, while still others even entered the sector successfully”.
This is the case of Banca Stato, having been very active already since several years, as trade finance team manager Davide Bignasca explained, or of the newcomer Banca Zarattini.
The role of a global institution was explained by Marco Olivierio from Zurich-based BNP-Paribas, active in 70 countries.
The attending operators, from Flame SA Franco Cavallini – an Italian company dealing with trading and shipping and specialized in steam coal, oil and metallurgical coke – to Carlo Ghezzi from Gurta SA – dealing with non-ferrous metals and alloys, being one of the few companies that moved from Zug to Lugano – emphasized the great transformations that commodity trading is facing in operational, financial and legal terms.
Cavallini pointed out the increasing impact of geopolitical factors, which must be continuously monitored, beginning with China, taking up over 50% of raw materials flows alone. These factors affect prices, which are increasingly volatile, thus requiring sophisticated hedging strategies based on financial instruments such as options and futures traded on the London and Chicago markets.
Operators must also deal with the so called “location spread”, i.e. the price difference between various places, with credit risk and with the need to provide pool insurances in order to reduce risks.
Ghezzi observed that, given markets volatility and banks’ restrictive policies, also liquidity management requires attention.
“In Ticino this tendency is felt more clearly, with banks often granting sums when it is less necessary, also in light of the increasingly restrictive regulations imposed by the Basel conventions and by the Swiss Financial Market Supervisory Authority’s (FINMA) directives”, Bignasca observed.
However, all panellists agreed that markets are more speculative, also because “the financial investment component often takes on wider dimensions compared to the commercial and industrial one. Besides, instruments backed by precious metals and even by nickel and copper are within the reach of retail investors, thus causing greater price fluctuations and requiring more accurate hedging operations”, Ghezzi pointed out.
However, how can the sector be strengthened in light of the megatrends affecting it?
“Risks are definitely part of the game, and variables are complex, from extraction conditions to transport, from possible damages to financial uncertainties, financial speculation cannot be opposed, rather it can only be attenuated; rules are increasing, and they often seem utopian”, Bignasca went on.
Despite all the above, according to Passalia, Ticino operators “must be prevented from leaving”, and it is necessary to take measures not only concerning tax burden and the various taxes imposed on the sector, but also as regards communication in order to prevent initiatives like those carried out by some ONG and political parties detrimentally hostile towards this activity, which sometimes is even criminalised, blaming traders for things they cannot be regarded as responsible for.
“We should aim at a responsible self-regulation allowing to avoid unfavourable and inappropriate rules. Therefore, we should work also on the image of our industry, to which LCTA has been providing positive contributions for years, together with its sister associations in Zug and Geneva”, LCTA’s founder remarked.
According to Bignasca, this is no easy undertaking.
A typical example are the Congolese cobalt mines that recently hit the headlines. 70% of cobalt is extracted by Chinese companies in accordance with more flexible rules compared to those applied by Westerns regulators.
“However, who can compete with China?”, BancaStato spokesman concluded.
Gian Luigi Trucco