By Maytaal Angel and Silvia Antonioli
LONDON/LAUSANNE, Switzerland (Reuters) - Western banks involved in global commodity trade flows are tightening payment procedures for steel and grain deals with Russia, having already taken similar steps for Ukraine due to its political upheaval.
Russia's moves to annex Ukraine's Crimean peninsula have marked the biggest East-West crisis since the Cold War and while the risk of a military conflagration has receded in recent weeks, banks in commodity trade finance remain cautious.
"Until the geopolitical situation is clear, most banks are reducing risk in Russia as well as Ukraine. They are concerned either that the situation deteriorates into unrest, or about being forced out through sanctions (against Russia)," a senior steel industry source said.
He said banks now require, for example, that payment for steel be made only once there is proof that cargoes have been loaded onto a vessel, as opposed to allowing the transfer of some funds for material still in Russia and Ukraine.
Swithun Still, director of Russia- and Ukraine-focused grains trader Solaris Commodities, said payment conditions for grain deals had also been tightened, with banks cutting down on "pre-financing" and paying only once there is proof material is aboard a vessel.
"A lot of the Swiss and Western banks have been withdrawing their finance until the bill of lading. The shadow banking sector is having a bit of a field day, because they are able to charge 8-10 percent (interest), if not more. Before the crisis the rate was roughly 3-3.5 percent," Still said.
Sources said BNP Paribas (BNPPS.UL), Societe Generale (SOGN.PA) and Banque Cantonale de Genève (BCGE) were amongst the banks tightening payment rules. The banks all declined to comment when contacted by Reuters.
IMPACT ON STEEL
In 2013/14 Russia is expected to be the world's seventh-largest grain exporter while Ukraine is second, data from the International Grains Council showed.
Global corn prices jumped around 20 percent this year to over $5 a bushel, partly thanks to fears that supply from Ukraine in particular could be hit, especially if there is a fall in plantings.
In steel, by contrast, the impact of tighter financing on prices has been limited, primarily due to the global market being massively oversupplied, and because it is largely small to mid-sized traders that have been impacted.
In 2012, Russia was the world's fifth-largest steel exporter, while Ukraine was the sixth largest, data from the International Steel Statistics Bureau showed.
Flows of steel and grain from Russian and Ukrainian ports have not been disrupted, although grain traders are monitoring the outlook for the coming corn crop in particular, with plantings due to be completed later this month.
"One thing to watch is the crop being seeded this year. Fifty percent is seeded from imported seeds. You could see the Ukrainian grains crop being reduced this year," said Solaris' Still.
Last month, experts warned Ukraine's coming corn crop could in the worst case drop by a third as banks reassess risk, cancelling credit lines to some traders - money which would have been used in part for crop financing.
In steel, two physical traders at small to mid-sized merchants said they were struggling to get pre-finance loans for Ukraine deals from BNP Paribas (BNP.PA), UBS (UBSN.VX) and Credit Suisse (CSGN.VX).
The banks declined to comment when contacted by Reuters.
(Corrects sourcing in para 7)
(Additional reporting by Polina Devitt in Moscow and Sarah McFarlane in London; Editing by Veronica Brown and Dale Hudson)
- Singapore International News