Dec 15 The golden era for commodities is far from over and declines in previously overheated prices offer opportunities for trading houses to extend ownership of assets while still betting on continued growth in China and Africa, top player Trafigura said.
In its first fully public annual report since being set up 20 years ago, Trafigura said 2013 has been a year of "reappraisal in commodities" as many resource markets appeared to move into large surpluses while global growth looked insufficient to absorb increases in supply.
While equity markets around the world rallied strongly on the back of accommodative monetary policies, commodity prices decoupled from stocks, gold prices collapsed, major mining projects saw large write-downs and investment funds withdrew money from the sector.
"As a result, the conventional wisdom about commodities has become distinctly bearish," Trafigura's chairman Claude Dauphin said in the report. Did that suggest the end of a golden age for commodities, he asked. Not at all.
"We see the fundamentals of the market to be still strong and likely to remain so for many years to come ... The outlook is far from gloomy. Indeed, we would argue that it has not changed in any very significant way from the one that prevailed before the financial bubble burst in 2008," Dauphin said.
"We see the developments of the past year as an inevitable adjustment in a market that had become overheated. We see asset valuations as having declined from excessive levels to realistic ones - and in some cases to levels that look attractive to us as investors," he said.
Dauphin owns less than 20 percent in Trafigura, which he set up with partners in 1993 after working in senior positions with Marc Rich. The media-shy businessman very rarely offers insight into the thinking and strategy of his trading empire which saw revenues of more than $130 billion and net profit of more than $2 billion in the 2013 financial year.
Trafigura has never previously published financial reports outside its immediate circle of stakeholders and financial partners. The report said the company stepped up its overall pace of investment in 2013.
It expanded its Russian trading operations, bought assets in Australia to become the country's largest independent fuel retailer and is investing over $800 million in a new port and river barge transport system in Colombia to export oil and coal.
It is also investing $850 million in the U.S. Corpus Christi dock and rail terminal in Texas to handle growing shale oil production.
"We believe that all these developments have positioned the Trafigura Group for a new phase of even stronger growth that will allow us to benefit from significant economies of scale in a business where global scale is an increasingly critical differentiator," the report said.
One of the key reasons for Trafigura's optimism about commodities market is Chinese GDP still growing at an annual rate of 7.7 percent, and probably recovering to 8 percent next year, says Trafigura, a major supplies of commodities to China.
"And even if some markets slow, others are picking up momentum: some African economies are now among the world's fastest-growing."
Trafigura has financial years lasting from September to September and the latest year was marked by a strong growth in trading volumes.
Trafigura saw its revenues rising to $133 billion from $120 billion in the previous year. That would make it a top-five player behind leaders Vitol and Glencore.
It traded 118 million tonnes of oil and products, an increase of 15 percent. The volumes represent more than the annual oil output of Nigeria or Norway.
The results were impacted significantly by the divestment of its fuel distribution and storage unit Puma - Trafigura sold stakes in the company to state and private Angolan investors and deconsolidated Puma from its balance sheet although it will remain its largest shareholder.
Trafigura net profits rose to $2.18 billion from $1 billion in 2012. Of this figure, Puma's divestment represented $1.427 billion.
Excluding Puma one-off gains, profit from operating activities was $1.189 billion, a fall of 2 percent versus the previous year. Gross margin stood flat year-on-year at 2.2 percent, generally seen as solid in the industry.
The company, which is co-owned by around 700 employees, also reduced share-based payments to its staff to $71 million from $89 million in 2012. Operating cash flow before working capital changes rose to $1.711 billion from $1.583 billion.
Trending On Reuters
The Reserve Bank of India (RBI) has not said it is done with interest rate cuts and will keep a close eye on incoming data, Governor Raghuram Rajan told CNBC in an interview. Read | RBI more likely to cut rates in Sept - Reuters poll