June 11, 2014 12:47 am JST

Commodity markets feeling loss of bank money

TOKYO -- Trading on the world's leading commodity exchanges has thinned as they bid farewell to some of their most active players: U.S. and European banks.

     Turnover on the Tokyo Commodity Exchange (Tocom) fell to a nearly 18-year low of 44,899 contracts Tuesday.

     Globally, trading volume shrank 17% on the year last month on the New York Mercantile Exchange, the Chicago Mercantile Exchange, the London Metal Exchange, International Exchange, and Tocom, with a total of around 95 million contracts changing hands, according to Nikkei calculations.

      Tocom saw a 36% drop in turnover, surpassing a 23% decline in New York. Investor money is flowing from commodities into high-flying stocks, says Tsuyoshi Ueno, senior economist at the NLI Research Institute in Tokyo.

     Hiroyuki Takai, president of Sumitomo Corporation Global Research, attributes these declines to less buying and selling by banks. Lenders piled into commodities in the 2000s. But the Volcker rule, the core of America's 2010 Wall Street reform act, places limits on their ability to make risky bets with their own money.

     With the rule set to take full effect in July 2015, U.S. and European banks have been unloading their commodity trading desks. Morgan Stanley sold its oil trading unit to Russia's Rosneft, while JPMorgan lined up Mercuria Energy Group as a buyer for its physical commodities business. Deutsche Bank gave up its position in setting the London gold fix, a price benchmark for the precious metal.

     Regulatory pressure is not the only force driving speculators away. Commodities prices have stabilized, making them unattractive bets for hedge funds.

     Real demand for crude oil, grain, and other commodities is expected to continue to grow, however. Yasuo Mogi, chairman of Nissan Century Securities in Tokyo, predicts the drop in trading will prove temporary.