Moroccan banks are introducing new services to commodity buyers and importers. They are approaching potential clients in an effort to convince them that only banks can help them navigate the rough waters of fluctuating commodity prices and currency movements. By hiring banks such as Attijariwafa, commodity buyers are told they will be better protected against the risks of fluctuation in the market.
For most, this is a welcomed service, in particular for traders involved in the cereal market, which has not been stable in the past months.
According to economic analysis think tank the Institut National d’Analyse de la Conjoncture (INAC), the forecasted cereal output from the current campaign will likely be sufficient to cover a bigger portion of domestic demand, hence reducing Morocco’s imports in the next cycles. This is good news for Morocco, in particular as prices have been facing pressure on the international market.
However, cereal production in Morocco will still not be sufficient to cover the entire demand and imports are necessary. For importers the situation is not encouraging. Prices on the international market have been moving upward over the past months due to a combination of rising demand and falling stocks.
In such a tough environment and uncertain prospects, importers of commodity products, including cereals, are advised to familiarise themselves with techniques that would enable them to preserve their margins. And that’s where banks come in. One such bank is Attijariwafa, which has recently partnered with France’s Calyon to offer services only recently allowed by Moroccan financial authorities.
The bank’s clients who import commodity products have had thus far the only options of either hiring international brokers or working with a foreign bank. But since the beginning of this year, Moroccan banks have been authorised to operate on their behalf for the purchase of raw materials and commodities.
Because this business can be highly speculative, it is regulated by the Moroccan customs to avoid or limit speculation. The Moroccan customs say the amount to be spent on import operations must no exceed the average volume of imports recorded by the importer in the past three years. The importer is also required to open a multi currency account at the bank even before the actual import transaction is completed.
This account must be fully and exclusively dedicated to the coverage of the risks inherent to the commodity market and fluctuating prices. For its part, the bank is responsible for determining the authorised credit risk for each of its clients and for the issuance of guarantees in favor of a single broker.
With these new rules and the opening of the sector to the banks, financial authorities are seeking to fully involve the banking sector in the process of risk coverage related to commodity import. The goal is to develop within the domestic financial sector new skills and expertise on import operations and risk management and have a much better control over the transactions performed in international trade.
The Moroccan banks that will offer such services will have to open an account at an international commodity brokerage firm and with multiple clients, the bank should leverage its strength in terms of volume by purchasing bulk, thus reducing costs.
What the Moroccan authorities are encouraging and seeking to develop within Morocco as a new practice is what is called commodity futures. A future is a contract that allows traders to lock in today the price at which they will buy or sell a commodity in the future.
The contract can also be traded and does provide a level of security and protection against price fluctuations and risks. Although it is in itself object of speculations, a future is a good response to the need of predictable outcomes and trends, and helps maintain a certain stability in commodity prices.
Worldwide, the Chicago Board of Trade (CBOT) is the globe’s biggest futures and options on futures exchange. It has more than 3,600 members who trade 50 different futures and options products through open auction and/or electronically.
Volume at the exchange in 2003 was a record breaking 454 million contracts. In Europe, Matif was established in 1986 and in 2000 Euronext was established with the merger of the bourses of Paris, Brussels, Amsterdam, Lisbon and London.