Commodity Volatility Tests Whether Trade Finance Can Survive

A company can have enough money to buy goods and still struggle to complete a trade.

This can happen when a country delays foreign-currency payments or a seller requires a special bank guarantee.

Banks may also avoid certain products, such as thermal coal, because of environmental rules.

The buyer’s ability to pay and the buyer’s country can create additional concerns.

When commodity prices rise, the same amount of money buys fewer goods.

Delays in shipping or payment can keep the money locked up for longer.

When prices fall, the goods used as security may be worth less.

Banks therefore examine the goods, the people buying them, prices and currencies.

Good financing arrangements are designed to keep the trade moving even when conditions change.