The worst of the liquidity squeeze on eurozone banks has eased conditions for commodities finance during 2012, but the business still faces significant challenges.

Despite well-publicised retrenchment in commodities finance by some European banks, merchant trading companies are still able to find sources of funding expand their business lines.

Tighter bank financing, falling government subsidies and rising US shale gas production are all putting the squeeze on the renewable energy industry.

With balance sheet clean-ups continuing in Europe and the US, banks in emerging markets have grabbed the opportunity to forge stronger relationships with local commodity producers. 

Thanks to shale drilling, the US is brimming with cheap gas and has turned itself into one of the world’s fastest-growing oil producers. Most analysts now expect it to be all but energy independent within 15 years, shattering mainstream assumptions from as recently as five years ago. The implications for global energy markets and geopolitics are profound. 

Brazil produces 20% of the world’s ethanol, much of which goes towards fuelling the country’s cars. However, in recent years a combination of poor harvests, gasoline subsidies and the global financial crisis have seen investment in the industry grind to a halt. Will it be revived by the elimination of trade taxes on sugar cane ethanol in the US?

Airline companies used to be one of the only markets that hedged their exposure to oil. But with the steep rise in crude prices over the past five years, many more firms are following suit, and now sovereigns in emerging markets are doing the same.

The metals brokerage market is consolidating as regulatory costs rise, but the growth of Asian demand means this is still a valuable business for those with the right scale and organisation.

Once purchased as a way to diversify out of equities, commodities appear to have become an extension of other risk assets. However, this state of affairs may not be permanent.