InterviewJP Morgan eyes petchem trading

13 September 2007 05:20  [Source: ICIS news]

By Nurul Darni

SINGAPORE (ICIS news)--US investment bank JP Morgan Chase plans to spread its wings into petrochemical trading in the next one to two years, after a successful foray into naphtha trades earlier in 2007, a company executive said late on Wednesday.

The Wall Street firm started actively trading physical naphtha and swaps in June and wants to use that expertise to leverage on growing Asian petrochemicals demand and offer its customers a complete set of hedging tools.

“There is good business so far in naphtha trading for us. We want to be able to use that advantage to expand into the downstream sector as sales and demand for risk hedging will be higher,” said Muwaffiq Salti, head of JPMorgan’s energy derivatives.

Demand for naphtha continues to be strong and supported by regional growth in the petrochemical industry, with new capacities and expansions in South Korea, Taiwan and Indonesia.

“This booming sector could easily attract competition from other investment banks and hedge funds,” Salti added in the interview.

The only other Wall Street bank active on trading physical crude and oil products in Asia is Morgan Stanley. The bank had been in energy and commodities trading for more than two decades, and provides risk management to participants in the energy markets.

JPMorgan is also looking to expand its trading and derivatives staff volume in Singapore in the next few months, given that the demand and needs from its customers are also increasing.

Wall Street investment banks used to avoid trading in physical oil markets as they were considered high-risks investments, Salti said.

But that is slowly changing now as we need proper mechanisms to “protect profits on our commodities and energy paper trading businesses,” he added.

Earlier this year, Japanese firm Mitsui Energy Risk Management (MERM) said it may introduce tools to hedge exposure to petrochemical products in Asia if there is ample liquidity in the markets.

Hedge funds are always on looking to invest in energy-related derivatives such as options, swaps or other tailor-made products that combine the two types of financial instruments, MERM said.

By: Nurul Darni
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