Derivatives house of the year: Macquarie Group

With over 2,100 staff across 44 offices – more than 770 of whom are located in the Asia-Pacific (Apac) region – Macquarie Group’s Commodities and Global Markets provides 24-hour access to global markets with key hubs, in London, Houston, New York, Singapore and Sydney. Macquarie has had an active presence in the foreign exchange, metals and agricultural markets for more than 30 years and the energy market for over 15 years, and remains committed to these markets and to Apac

“In Apac, we have continued to expand our footprint; we are currently the only global financial institution physically and financially trading Japanese electricity, and are adding physical liquefied natural gas [LNG] trading capabilities, in addition to providing bespoke financing solutions across the energy, agricultural and metals spectrum,” says Andrew McGrath, head of commodities and global markets, Asia. “We have also grown our emissions capabilities to include voluntary carbon and have financed early-stage emissions reduction projects.”

Given this foundation, Macquarie’s risk business is a client-led one that anticipates and responds to the changing needs of its clients and markets, and has staff in specialised areas of expertise in terms of geography and products, says McGrath. “We are located in the markets we trade, and we believe in having specialists on the ground, in-country.”

Macquarie Group has a unique combination of physical capabilities and fundamental expertise within financial hedging, and capital offerings that have allowed it to develop unique solutions that combine risk management with financing tools. This has enabled Macquarie, during the challenging market conditions over the past 12 months, to increase its market position in areas such as Asian power, metals, agriculture, and crude and oil product hedging.

A case in point was during the market volatility resulting from extreme winter conditions in north Asia that led to an increase in heating demand and a power price spike on the Japan Electric Power Exchange in early 2021. Macquarie stepped in as an active market intermediary in Japan, facilitating liquidity and providing market access to a number of clients. Similarly, with one of Macquarie’s Asian corporate steel mill clients looking to hedge its long-term exposure to iron ore lump – but facing an illiquid exchange market – Macquarie was able to help the client overcome this hurdle by warehousing the risk via an over-the-counter (OTC) transaction.

In the particularly challenging oil market of the past year, Macquarie was entrusted with being the sole and exclusive working capital provider to a Brunei refinery for crude oil supply and inventory. Macquarie was able to deliver on this mandate by offering an end-to-end, hedge-embedded, long-term solution that greatly reduced its working capital footprint. Indeed, Macquarie not only provided working capital facilities, but also designed the hedging mechanism that remained effective and continuous throughout, leveraging the group’s physical, financial and risk management expertise to create a completely bespoke solution for its client.

“This was a unique and landmark transaction combining a working capital solution, a physical offtake and a physical supply agreement into one seamless facility,” says McGrath. “We were able to support the refinery as it focused on further optimising its operations and supplying high-quality transportation fuels to the region, and intermediate feedstock for the group’s petrochemical plants onshore in China.”

Looking ahead to the way in which the drive towards decarbonisation is transforming the global energy landscape, Macquarie is committed to supporting its clients and helping them achieve their ambitions by establishing a dedicated global carbon business.

To this end, the Group has partnered with Oxy Low Carbon Ventures to arrange and execute the world’s first shipment of carbon-neutral crude oil to Reliance Industries in India, and has also completed an investment in a cookstove carbon project in Africa with its partner C-Quest Capital that will provide a stream of offsets that can be marketed across a global client set.

This ability to combine trading capabilities and fundamental market expertise with financing and hedging abilities has been key to Macquarie’s success over the past 12 months in offering valuable products to clients that address all of their commodity-related needs and provide them with tools to effectively manage their risks at any point of the economic cycle. A prime example of this was the trading team and the commodities desk analysts leveraging their detailed understanding of both physical and derivatives markets to capitalise on the unprecedented divergence in gold prices between New York, London and China (Shanghai).

Macquarie’s speed and innovation enabled it to react quickly to allow clients to take advantage of this significant dislocation by developing OTC relative-value arbitrage products between Comex futures and Loco London, as well as Comex and onshore Shanghai Futures Exchange gold futures. While many of its competitors retreated from this market segment as a result of the price volatility in 2020, Macquarie in fact increased its exposure to the sector.

The group also built on its strong power offering in Australia to extend its financing and trading capabilities into Asia in 2021, launching a new power producer supplier in the Japanese energy market. Its continued expansion in LNG and electricity in Asia over the last year – and ability to offer derivatives in both of these markets – has further enabled Macquarie to engage with existing and new clients, including deepening its engagement with the emerging group of independent electricity retailers.

“Overall, we remain well positioned to continue offering breadth and depth of solutions to clients facing such challenges as price risk, supply uncertainty and financing needs across the commodity spectrum, continuously looking for opportunities to further expand the platform and product offering,” says Macquarie.