Gopul Shah is director of corporate treasury and structured trade finance at Golden Agri Resources, a Singapore-based trading house. He has decades of experience in the commodities industry, and spoke to GTR about the changes in the sector over the past quarter-century.



Name: Gopul Shah
Company: Golden Agri Resources
Country: Singapore
Sector: Commodities


GTR: In more than 20 years leading treasuries and structured trade businesses in the commodities sectors, what have been the most major changes?

Shah: When I started almost 25 years ago, everything was manual – people were using telex and signed products. The information available to banks and companies was opaque and limited. Everybody tried to own it by way of information arbitrage. You also had political patronage dominating commodities markets in Asia, such as the Korean chaebols, Chinese state-owned enterprises and family companies elsewhere in Asia. There was rent-seeking behaviour – the entire commodity business was dominated by a few houses, which had political and financial clout. Things have completely changed with the democratisation of technology, digitisation, universal banking and the free flow of information and talent that’s happening.

The information arbitrage and patronage gradually disappeared and the playing field has become more level. Players that didn’t exist or were niche in the past started to build up their own international networks, such as Glencore, Vitol, Noble, Trafigura, Wilmar, Olam and Mercuria. Many emerging market companies became professionally run multinationals. In the past, they were usually American or European multinationals, but now it’s changed: Chinese, Japanese, Korean, Indian and Asian companies are all going global. It’s partly to do with the rising education levels, global banking and technology, and the fact that host governments have given up control, restructured their economies and reduced trade barriers. Small players can now actually enter the global market. There is also growing awareness and care for talent, risk management, reputation, environmental and social issues, and governance.


GTR: How have the methods used by commodity houses to raise money changed?

Shah: In the past, traditional trade finance products dominated – you had limited options to securitise your assets. Now you get fintechs and fund managers which can finance your suppliers, or securitise your inventory and discount receivables. There are credit insurers that insure the performance and credit risk. These options were very limited before, but now you have a lot of choice to structure finance and that’s a big sea change.


GTR: Do you see a diminishing role for traditional trade finance products?

Shah: Traditional trade finance products will eventually disappear. Even today the trend with US companies and banks is that they prefer to avoid letters of credit (LCs) – it’s a limited business. However, in some parts of the world you may still need them. For example, in Asia you need a bank guarantee, so that’s when you end up using an LC or bank payment obligation.


GTR: There’s lots of talk about how the prevalence of data will shake up the commodity trading business. What is your prediction?

Shah: The connectivity of data and platforms among the international trading houses is happening. Everyone was very fearful of sharing their data, but we’ve seen some big changes recently. We saw Cargill, Bunge, Archer Daniel Midland and LDC come together to form a partnership to standardise and digitise global agricultural transactions for the benefit of industry players. The blockchains are up and running. There are companies in Singapore that have come up with a platform to connect with buyers and suppliers that are spread across Asia, Australia, and Africa. The Singapore and Hong Kong governments are deploying National Trade Platform.

In the past nobody trusted each other nor wanted to share, but this collaboration and convergence is leading to big changes. In the long run, this will also lead to consolidation and risk anti-trust oversight; some companies will have to fall out. The moment you start collaborating today, you’re also a competitor. You might be acquired or you will just crash out if you can’t keep up. This will have a material effect on the commodities business. Who knows, trading of commodities in the future may be through a digital exchange. Trading houses will use an exchange to buy and sell; or the exchanges could become commodity houses, in physical trading.

Think about Alibaba and Amazon, they’re platforms today aggregating demand and supply for the SMEs. That could be expanded to include large-scale commodity trading, universal banking, and risk management.