The Financial Times (20 April 2010) has 2 articles about Trafigura and given that information about Trafigura and its business appears so rarely I believe it worthwhile to pass this on. Unfortunately, their are restrictions on the use of their (Financial Times) material and so I can only make a few points.
The two articles are:
"Trafigura Lifts Veil to Reveal $1bn Profit" by Javier Blas and Anousha Sakoui
"Rare Glimpse as Trafigura Debuts" by Javier Blas.
To read the full articles you need to take out a free subscription to the FT.
Trafigura’s profitability is staggering:
“Trafigura …. earned almost $1bn last year, revealing the extraordinary profitability of the publicity-shy Swiss-based trading houses which dominate commodities markets.” [Trafigura Lifts etc – see above]
I wonder why the “Swiss-based trading houses which dominate commodities markets” are publicity-shy?
I can think of reasons but all would be pure speculation. I’d better keep them to myself. Perhaps Trafigura and its Swiss competitors might care to tell us but, somehow, I think I’ll have to wait longer than I did for the WSP Report!
The same Financial Times article talks about Trafigura’s founders and shareholders thus:
“Claude Dauphin, one of the company’s founders, owns “less than 20 per cent”, while “over 500 senior employees” control the rest. The two other founders, Eric de Turckheim and Graham Sharp, are no longer shareholders.”
On average, therefore, each of the “over 500 senior employees” owns 0.16% of Trafigura’s shares. I wonder what their dividend policy is? Even owning 0.16% could give a very tidy sum in dividends when the profits are almost $1billion.
The second article describes briefly the volatility in prices and the basic opportunities exploited by the trading houses.
“Trafigura believes that the trading houses will continue to benefit from increased levels of volatility commodity prices over the last few years, which are expected to continue. Usually, traders take little or no risk when betting on the direction of raw materials prices, but exploit what Trafigura calls “natural, low risk physical arbitrage opportunities”.
These include seasonal shortages of petrol in the US, region scarcity of raw materials due to a strike in a large mine, or price differentials over time due to the perception of future supply and demand balances.” [Rare Glimpse etc – see above]
I imagine the Probo Koala waste dumping and the tank explosion at Sløvåg in Norway were the sad end result of such an arbitrage. Mexican coker naphtha was bought cheaply in the knowledge that, once sweetened, the product could be sold at massive profit as gasoline for African markets. There was no financial risk to Trafigura in this trade. Profit was guaranteed.
Each chance to glimpse the inside of Trafigura or its competitors, e.g. Glencore, is worth taking. Such companies must surely affect all of us.
The prices we pay at the pumps, of domestic fuel, of raw materials which end up in products in our home and goodness knows what else are affected by the trades these companies – and many others – make. They operate between producers and customers although, in some cases, they are themselves the producers because some of the trading houses own or have stakes in mines. AlertNet.org carried the following description of Trafigura:
“The company says it trades an average 1.5 million barrels of crude and oil products a day, making it the third-largest independent oil trader in the world.
- The group has investments in industrial assets globally of more than $1 billion, including: oil storage and delivery facilities in Africa, Central and South America, mostly run by subsidiary Puma Group of Companies; a zinc, lead and silver mine in Peru.”
We must keep looking not only at Trafigura but at all companies who operate in the same and similar markets. Our financial well-being depends on it and occasionally our physical well-being too.