6 min read
Key takeaways
- Supply chains and trading corridors are shifting and a rapidly changing economic and tariff environment is driving pricing volatility, leading to comparative advantages for some suppliers and the emergence of new players, customers and markets
- Liquidity is essential for clients and their ecosystems to adjust and seize new opportunities. Solutions include producer prepayments, supply chain finance, alternatives to supply chain finance, inventory finance and portfolio receivables discounting
Introduction
Despite recent declines in trade volumes, demand for working capital and trade finance solutions is increasing. Trade finance tools enable clients to remain agile, adapt to disruptions and capitalize on new opportunities in a dynamic business environment where capital, supply security and risk mitigation requirements are growing.
These solutions also empower clients to become preferred suppliers and buyers within their ecosystems. The integration of traditional trade finance structures alongside new ways of deployment is driving innovation, enhanced by digital and AI advancements, risk distribution/syndication capabilities and continued investments in service and operations.
Cross commodity insights
National and strategic policies are aligned in keeping supply chains secure and resilient. Simultaneously, the rapidly changing geopolitical environment, declining global trade volume across commodities, lower commodity prices and climate-related disruption are driving a heightened risk environment.1
Coupled with uncertainty over the final impact of tariffs, inflationary pressures on margins, changing supply chains and pricing volatility is also driving a renewed interest in off-balance sheet inventory solutions, not only for liquidity and working capital reasons but to provide agility to capture new market opportunities.
All these factors are leading to a focus on de-risking supply chains, making access to capital and risk mitigation tools more critical.
The need for prepayments to producers and traders is growing, as new trading entrants arise and producers in some geographies—particularly in the emerging markets—may be challenged for capital. On the other side of this equation, players are seeking to access and lock in more third-party flows—including those with divested assets—for traditional (crude oil, refined product, copper, alumina) and new (power, carbon credit, renewable certificates, photovoltaic panels, batteries) underlying commodities to grow their businesses and support producers. Although geopolitics and the overall trade and tariff environment in 2025 are expected to directionally impact flows, new market entrants and volatility will continue to drive increased trading and focus on working capital solutions to support it.
We note a similar trend in the diversified industrial and technology space, as new markets for commodity flows (natural gas, metals) grow to support data centers and energy transition. Structures long used in the commodities space, such as prepayments, are now integrated into the overall solution. Outside the traditional energy, metals and softs trading spaces, industrial names also look to secure term supplies of energy or critical metals at competitive rates.
Climate-driven impacts on crop yields are also driving the need for solutions to address food insecurity while providing working capital to producers of agricultural goods. These solutions may include barter-type prepayments in fertilizer, amortized by exports of wheat or soybeans. Overall, there is also an emerging trend for more energy traders to diversify into trading new commodity classes, such as: copper, nickel, aluminum, lithium, electricity, biofuels and grains.
Energy insights
Capital stress is evident, with funding resources gravitating towards large players and traders. Post-sanctions, the demand for working capital financing remains strong, but access to capital can be challenging for smaller players, particularly in emerging markets. Smaller traders face higher capital costs, prompting interest in buyer-led working capital solutions for competitive off-balance sheet financing.
On the sales side, laying off risk to trade more value within exposure limits and accessing liquidity while offering longer terms to capture market share drives interest in off-balance sheet portfolio receivables solutions. New participants like Export Credit Agencies (ECA), private credit and hedge funds are stepping in, as commodities trade finance assets offer attractive returns. Capacity provided by ECAs continues to grow, as security of supply remains a priority. Outside of trading, upstream and midstream businesses are increasingly seeking working capital solutions to support suppliers.
Increased growth prospects that can be supported by trade finance are anticipated in the Americas and the Middle East, specifically for U.S. natural gas and utilities, due to three major demand drivers: increased liquefied natural gas (LNG) export capacity, rising power demand from electrification and coal-to-gas switching.
Significant growth in natural gas power plants and natural gas demand is projected, driven by LNG exports and increased domestic power generation needs, particularly from data centers. U.S. LNG export capacity is expected to expand significantly by 2027. U.S. oil production is also nearing record levels, with modest growth expected. Oil prices are forecasted to slow in 2025.2
Other players in the power and utilities space may also look at working capital tools to release liquidity and mitigate climate-related impacts to their power generation capacity.
As the future of the energy industry diversifies and grows, both China and the Middle East are investing heavily in renewables, such as solar and wind power. In addition to ECA financing of such projects, trade finance is expected to take on a bigger role supporting the development and export of Greentech equipment and technology and facilitating trade of renewables molecules.
Metals and Mining
The metals and mining sector mirrors trends in the energy space, with new market entrants in the Middle East and Asia driving investment and trading activity. As these regions aim for energy diversification, transition and trading in critical metals and minerals, we expect an increasing interest in portfolio receivables solutions to de-risk, grow sales and inject liquidity for their end clients.
New capacity and softer domestic demand may lead to increased exporting from Asia and the Middle East. Growing demand for critical metals and minerals, coupled with capital access challenges for producers, drives steady prepayments to producers in Latin America, Africa and Asia.
Traditionally, metals and mining sales and distribution has been paper heavy under Letters of Credit (L/C) and Bills of Exchange (BOE). However, there is growing adoption of digital enhancements for both of these instruments.
Agriculture–Softs
Food security (grains, cocoa, coffee, etc.), from farmer production to distribution, remains a priority, extending to energy players diversifying into the softs space, including biofuels. This drives collaboration between commodity traders, governments and multilateral agencies (MLAs). Similar to other natural resources players offering structures for early payment or prepayments, buyers continue to support producers’ working capital needs while locking in term supplies to trade.
Demand for risk cover in key markets like Pakistan, Bangladesh, Iraq and Egypt, in cooperation with MLAs, remains strong. Additionally, interest in onshore renminbi financing for flows into China is growing.
Softs players may increasingly invest equity with local players to meet rising demand in higher-risk jurisdictions, supporting emerging and destination markets. Biofuel flows are bringing softs and energy players closer, creating new working capital requirements. Counter to other natural resource prices, spikes in cocoa prices due to lower crop yields drive interest in working capital levers for liquidity.
Navigate challenges and opportunities with J.P. Morgan Payments
While it is challenging to predict where the new trade corridors will eventually settle and what further changes are on the horizon, it is clear the reinvention of traditional trade finance enables our clients to adapt, be agile and become preferred buyers or suppliers, delivering comparative advantages. The adoption of innovative solutions is certain, driven by working capital needs, digitization and the players’ goals to support their suppliers, producers and end clients. Examples include:
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New off-balance sheet inventory financing use cases, incorporating additional trade finance solutions such as prepays and contract monetization
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Growing roles for BOE open account flows, including the increased adoption of electronic BOEs, on a pre-or post-shipment basis
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Adaptation of buyer-led receivables financing solutions, usage of L/Cs payable at sight, BOE and promissory notes as complements or alternatives to supply chain finance
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Use of traditional guarantees to cover performance risk as part of an energy transition strategy
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Adoption of contract monetization structures for milestone accelerations
As global trade in commodities continues to face complexities, J.P. Morgan can provide the trade finance solutions and tools you need to help access liquidity to drive growth, facilitate payments and manage risks, supporting your suppliers and end clients while navigating a period of rapid change. We believe our commitment to accessing new pools of capital through risk distribution, digitization, technology and dedicated service will continue to make the difference for our clients’ future growth.
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