Metal traders take LC 'haircuts' after banks get picky on commodity finance

Metals traders have begun to feel the pinch after a turbulent period in commodity markets have caused some banks to step back from fully financing cargoes under letters of credit (LC).

Following rollercoaster price movements and controversial defaults by Singapore energy traders Hin Leong and Zenrock, banks are said by multiple sources to be less inclined to finance full cargoes and are holding back from extending fresh loans.
For some metals business, banks have recently told traders they will only finance a portion of the cargo being shipped, citing recent turbulence as cause.
“Haircuts” refer to when LCs are issued to guarantee payment and shipment of goods, but at levels that do not fully cover the value of the goods. Sources said that in some cases banks would only finance up to 90% of a cargo's value.

"Haircuts are increasing and what it means is that the balance, say 10%...

Published

Archie Hunter

Karen Ng

May 22, 2020

16:53 GMT

London, Singapore