* Deutsche commodity revenues tops Barclays for first time
* Barclays suffered heavy losses in copper, aluminium trading
* Strength in Asia may allow Barclays to rebound this year
By Eric Onstad
LONDON, March 20 (Reuters) - Deutsche Bank's expansion in commodities under David Silbert has propelled it to the top European ranking in the volatile sector above rival Barclays after sharp losses by the UK bank in metals trading last year.
Both banks have been battling in recent years to challenge the supremacy in lucrative commodities by U.S. investment banks Goldman Sachs, JP Morgan and Morgan Stanley , which hold the top three global positions.
Deutsche's move cements Silbert's steady growth of the bank's commodity franchise since he joined in 2007 from Merrill Lynch, boosting trading in energy and metals.
Silbert, a U.S. gas trader in the 1990s, told Reuters last September he regarded tight risk control and diversified portfolios as driving Deutsche's strong performance in commodities.
In contrast, Barclays under global commodity head Roger Jones took heavy bets in copper and aluminium that went wrong when metals markets lurched lower after hitting record highs earlier in the year.
The rise of Deutsche comes amid a shake-up in the sector long dominated by Wall Street banks, struggling after being forced to shut down riskier proprietary trading operations.
Deutsche said last month it delivered record annual revenues in commodities while Barclays said commodities was among areas reporting weaker revenue.
Neither bank gives a breakdown of commodities revenue within broader trading divisions, but analysts and consultants agree that Deutsche clearly pulled in front last year.
"Deutsche Bank is growing, and definitely heading toward Morgan Stanley, but they're not there yet. They moved ahead of Barclays in 2011 because of the metals losses there," said Seb Walker at UK financial markets consultancy Tricumen.
Last year was Barclays' worst year in commodities since at least 2007, he added.
On Tuesday, Deutsche announced plans to expand its physical precious metals business by hiring security firm G4S to build a new gold vault.
Globally, Deutsche now ranks fourth, closely behind third placed Morgan Stanley, while JP Morgan and Goldman Sachs battle for the top places, analysts said.
Both Deutsche and Barclays have stronger business in retail structured products than the U.S. banks and they also have the advantage of not falling under tightened U.S. regulatory rules.
Analyst Kian Abouhossein at JP Morgan estimated Deutsche's commodity revenues increased by 13 percent to $1.02 billion last year while Barclays' slid by 29 percent to $683 million.
It represents a dramatic reversal from last year when the two were neck-and-neck, with Barclays at $959 million, ahead of Deutsche's $899 million, he said in a research note.
Deutsche and Barclays declined to comment.
Until recently, investment bank unit Barclays Capital (Barcap) had been expanding in commodities under Jones and moving towards the size of its Wall Street rivals.
Jones, who like Silbert started in gas trading, worked for Deutsche after the German bank acquired Bankers Trust in 1998, before joining Barcap in 2002 to head oil and U.S. natural gas, according to an interview with website Risk.net.
"Barcap has had a less lucky couple of years. Three years ago they were really looking like a challenger to Goldman Sachs and Morgan Stanley but have been overtaken since by JP Morgan," Walker said.
Before the latest upsurge by Deutsche, JP Morgan catapulted ahead of Barcap with a string of acquisitions, including RBS Sempra, which gave it a major global oil and metals trading operation.
Last year, JP Morgan surged to commodity revenues of $2.8 billion, more than Goldman and Morgan Stanley, according to data from the U.S. banks, which break out commodity data in their results.
The head of metals trading at Barcap and a colleague left the company in late December after losses in copper and aluminium futures, trading sources told Reuters at the time.
Barclays also shut its proprietary trading arm last year as it streamlined operations alongside the exit of star trader Todd Edgar and several colleagues. Edgar's team traded a variety of assets, including commodities, but the unit was not included in the commodities group.
Barclays is due to bounce back, partly on the strength of its operations in Asia, especially in top commodity consumer China, Walker said.
Barclays has a strategic alliance with the China Development Bank, a 12 percent stake in Chinese physical metals trading firm Bayin and has seen strong growth in its commodity assets under management in Asia.
"Barcap is making some interesting moves right now in Asia," Walker said. "Our analysis suggests that Barclays will go back above Deutsche. And if their Asian business grows as much as our sources think it will, I can see them topping $1 billion in revenues."
Many other European banks, under pressure during the European debt crisis to boost capital ratios, have retreated in commodities and are well below Deutsche and Barcap.
Credit Suisse is third in Europe with commodity revenues of $321 million, followed by France's BNP Paribas with $198 million, UBS at $153 million, Natixis with $120 million and Societe Generale at $107 million, according to estimates by Abouhossein at JP Morgan.