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
"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
Trafigura has financial years lasting from September to
September and the latest year was marked by a strong growth in
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
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.