Thanks to warm weather and recovering production, oil prices have now eased to $60 a barrel. But the fluctuations have been more than enough to turn an otherwise good year for the world's commodities traders into a potentially great one. Despite the derailment of Refco, the bankrupt futures and commodities trading giant, recruiters say the commodities area is hot and likely to remain so.
The Securities Industry Association (SIA), the US trade body, suggests commodities revenues at US financial services firms could reach $3.2bn in 2005, more than double the total for last year. Frank Fernandez, chief economist for the SIA, says activity in the commodities markets has increased substantially, and not just for oil and gas.
"There's been a huge pick up in the energy futures markets. Crude oil, natural gas, primary metals, and precious metals have seen a flurry of activity," says Fernandez. He says price reductions are on the cards: "Commodity prices are now being impacted by the cooling housing market and a reassessment of companies' inventory policies."
For commodities traders, who make their money betting on price movements, such volatility spells good news for pay. "Commodities bonuses will be up 30% on last year," forecasts Michael Karp, co-founder and partner at international search firm The Options Group. "An amazing amount of revenue has been earned from the commodities area," he adds.
Never slow to milk a cash cow, rising commodities revenues have galvanized investment banks into recruiting. Those hiring for commodities desks this year include Credit Suisse First Boston, ABN Amro, Merrill Lynch, JP Morgan, Deutsche Bank, Dresdner Kleinwort Wasserstein, Lehman Brothers and Calyon.
London, NY, and carbon trading
Recruitment activity is focused on the dual centres of the commodities trading universe: London and New York. Just 25% of German bank Dresdner Kleinwort Wasserstein's commodities trading team is located in Frankfurt, for example. "London is a focal point for commodities talent globally," says Jakob Bloch, chief executive of recruiter Commodity Appointments. "Most key European commodities staff are working out of London."
Continental Europe has its own share of commodities-related activity, however. Italy started a power exchange last year. Paolo Ghislandi, secretary-general of Aiget, the Milan-based Italian association of energy traders and suppliers, says Milan currently houses around 150 people trading financial instruments related to energy. He expects this to rise: "The Italian market is still developing. My feeling is that Italian and international banks are waiting for it to become more liquid so they can act as market makers without needing to physically own power plants."
In Paris, jobs for commodities traders hinge on hedge funds, proprietary trading desks at investment banks, and companies engaged trading physical commodities. Guy de Bravoir, a consultant at recruitment firm Robert Walters, said both Parisian banks and oil majors are looking at building teams: "It's a niche market, but one that is picking up and taking advantage of oil price volatility."
The next growth area for commodities jobs may well be carbon trading. Signatories to the Kyoto Protocol will participate in a carbon trading scheme from 2008, while the European Union launched its own scheme in January 2005. Cornelia Luptowitsch, a consultant specialising in emissions trading at Commodity Appointments, says carbon trading desks in investment banks are small but growing: "There will definitely be hiring next year: anyone who has set up an energy trading desk will see carbon trading as a natural addition."
Despite its failure to ratify Kyoto, carbon trading is also a growing issue in the US: "It's going to be hot," says Karp at Options Group. "We're already seeing searches in the carbon trading area coming to us for 2006."