LONDON (Reuters) - Commodities trading house Trafigura aims to expand its oil trading business further to rival that of top trader Vitol in the next few years and believes rising barriers to entry into the sector will squeeze out potential newcomers.
The firm’s chief financial officer, Christophe Salmon, told the Reuters Commodities Summit that Trafigura, which over the past year overtook Glencore (GLEN.L) as the world’s second largest oil trading house, was still very much in growth mode.
Trafigura has doubled the amount of oil it trades on a daily basis to 4 million barrels per day since 2012 and Salmon said there was no reason not to aim to handle as much as Vitol, which trades more crude oil daily than any other trading house.
“When we look at Vitol, Vitol is doing 6 million bpd and there is no reason why Trafigura cannot reach the level of Vitol. Will it happen tomorrow? Certainly not, but over time, is it a long-term target? Yes, of course,” Salmon said.
“Even with 5 or 6 million bpd -- let’s project ourselves in a couple of years’ time -- oil consumption will have increased and we will still only have something like 5 percent market share overall,” he said.
Tougher compliance and regulation has made the commodities world a far more expensive business for new entrants, a reality that Salmon bills as a positive for Trafigura.
“I would say that it’s good for us. At the end of the day, all these new requirements are increasing the barriers to entry into our sector. You need to have a fully-fledged compliance department and it’s quite expensive if you are a smaller, or regional, trading house,” he said.
Beyond crude oil and other energy products, Trafigura also trades metals.
“On the metals side, the picture is a little bit different. Today, depending on the metal, we have market share of up to 20-22 percent, which is high and means for us our ability to go further is limited. Not impossible, but limited,” Salmon said.
Salmon also said he foresaw no impact on his firm’s business from Britain’s decision to leave the European Union but added that it may indirectly hit the ability of UK banks to lend to commodities trading firms, which mainly operate in U.S. dollars.
“With the decrease in the pound, UK banks may have more difficulty lending in U.S. dollars. We have seen this in Australia before when Aussie banks have lowered lending limits to our business,” said Salmon.
He also said that Basel-4 financial regulations and higher capital requirements could have a negative impact on the lending ability of EU banks -- traditional leading lenders to commodities players -- which would ultimately benefit Asian banks.
Reporting by Amanda Cooper; Editing by Keith Weir; Reuters Summits on Twitter @Reuters_Summits