Freepoint Commodities has embarked on a major expansion spree in Asia, as it strongly believes the unshackling of China's oil sector from decades of government controls and the phenomenal growth in oil consumption that India is witnessing would give it an ideal platform to push growth.
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The Connecticut-based commodities merchant is of the view that as banks reduce exposure to commodities amid pressure from regulators, Freepoint, with substantial talent from the investment banking sector, would be able to provide customized solutions to customers -- from cargoes to risk management -- that would help the company make deeper inroads into Asia, said Ouyang Xiuzhang, chief executive officer for Asia-Pacific.
"In oversupplied markets, Asia is the biggest buyer and that is a big opportunity for us," Ouyang told S&P Global Platts in an interview. "We are seeing the deregulation of China's teapot refineries. Many of them are coming to Singapore and are expanding globally. They want to have global partners. We want to expand our opportunities there."
Ouyang added that Freepoint was looking to have long-term deals with independent refiners in China, under which they would be able to supply crude oil regularly, while at the same time look for opportunities to export oil products from those refiners when Beijing allows them to export again.
In a major step towards deregulating the oil sector, Beijing, a couple of years ago, allowed teapot refiners -- small independent refiners not affiliated with the major Chinese state-owned oil companies -- to process imported crudes and gave some of them the right to import their own crude. The refiners were subsequently permitted to export oil products, but the permission was withdrawn late last year.
"We are globally in discussions with refiners for strategic long-term deals. We believe that we can also find partners in Asia to do supply and offtake deals as well. We are also in the blending business, which we can do in Asia."
CARGOES, RISK MANAGEMENT
Launched in 2011 with private equity backing from Stone Point Capital fund, the manager of the $15-billion Trident Funds, Freepoint saw the return of David Messer as its CEO. Before joining Freepoint, Messer led Sempra Energy Trading Corp., which was subsequently sold to The Royal Bank of Scotland, formally forming the RBS Sempra Commodities joint venture in April 2008.
To make an aggressive push into Asia, Freepoint in 2016 roped in Ouyang, who had previously worked with JP Morgan, Goldman Sachs and Noble Group, where he had headed their oil and metals businesses.
In addition to providing physical supply services and related structured solutions for counterparties, the company also finances upper and mid-stream commodity assets.
"We want to provide holistic solutions to our customers -- such as physical cargoes, infrastructure support, risk management solutions. As banks get out of physical commodities, we think we have the right talent to fill some of that space and functions," Ouyang added.
The expansion into Asia by Freepoint comes at a time when some of the global banks have reduced their exposure to commodities trading, amid growing pressure and scrutiny from regulators. Some banks have cut staffing on commodities desks.
Freepoint said in a statement in February that it had added 17 people in Singapore and eight in Shanghai during fourth-quarter 2016 and January 2017. The additions had taken the total number of Freepoint employees worldwide to over 350, spread across 14 cities in six countries.
Ouyang said as Freepoint looks for key growth pockets in Asia, it has set its eyes on expanding staff and volumes in India.
"Having people on the ground in India is definitely a part of the plan. We will wait for the right time, but opening a local office in India at some point is a possibility," he added.
According to Platts Analytics, India's oil demand growth will outpace China's demand growth in 2017 for the third year in a row. While India's demand is expected to grow at about 7% to 4.13 million b/d in 2017, China's oil demand is seen growing by about 3% to 11.5 million b/d.
"India is obviously one of the fastest growing markets and everybody is looking towards India as the next big powerhouse, as China slows down. We have started trading with certain major Indian oil companies already," Ouyang said.
He added that Freepoint refined oil product markets in Southeast Asia also provided promising prospects for growth. "Southeast Asia is always a key focus for us as far as oil products trading is concerned. We will continue to look for opportunities in that space in the region."
Earlier this year, Freepoint Commodities started participating in the Platts Market on Close assessment process for certain refined oil products.
Freepoint set up a metals unit under the name Freepoint Metals & Concentrates LLC after purchasing the base metal concentrates and copper cathodes business from JP Morgan in 2012. It is a wholly owned subsidiary of Freepoint.
With China representing half of the world's metals demand, Freepoint said it had put a team in Shanghai to push growth.
"We see plenty of opportunities in China's refined metals markets. We will be looking to build long-term relationships with Chinese steel mills," adding that Freepoint would not only be looking to grow the non-ferrous metals segment but would also be keen to tap into the ferrous metals segment.
"And in the agriculture space, we are keen to play a bigger role in the exports of US agricultural products to China," he said, adding that the company would also be looking for growth opportunities in the coal segment.
Ouyang added that Freepoint was planning to trade in local currencies in some selective Asian countries where they see stronger growth potential to make inroads into the local market.
"I think we will be able to grow our global trading volumes by as much as 40% in the next two-three years. Asia will be a significant part of that growth. We think that Asia would be able to account for about 30% of the company's overall trading volumes in two-three years," he said.
--Sambit Mohanty, firstname.lastname@example.org
--Edited by Arnab Banerjee, email@example.com