Trafigura posts record half-year profit as commodities volatility intensifies

A Russian soldier guards an area of the Mariupol Sea Port in eastern Ukraine. Following Russia’s invasion of Ukraine in February, commodity prices have soared and trade flows have been redrawn. Copyright 2022 The Associated Press. All Rights Reserved.

Geneva-based Trafigura reported record half-year profits as volatility and disruption in commodity markets, exacerbated by the war in Ukraine, supercharged earnings for the world’s biggest traders.

The group’s net profit for the six months to the end of March was $2.7 billion (CHF2.68 billion), up 27% from last year, with the company trading a record volume of oil and metals, its two key divisions.

The results offer the first glimpse of how some of the largest commodity traders have fared as a result of soaring prices and the redrawing of trade flows following Russia’s invasion of Ukraine in February.

While the results capture only the initial weeks of the war, Trafigura said it had made a large impact as customers turned to the company to help “reorder their supply chains”.

“The Ukraine crisis placed supply chains under unprecedented strain, especially in oil, gas and refined petroleum products as buyers struggled to find alternative sources of supply,” said chief financial officer Christophe Salmon.

Chief executive Jeremy Weir said he saw “no let-up” in the market conditions that have driven up the prices of almost every commodity since the start of the year. This week he warned oil prices could go “parabolic” later this year, increasing the risk of an economic slowdown as supplies are strained.

“Global supply chains remain disrupted and the geopolitical situation will continue to be turbulent,” he said, though he warned that inflation and constrained access to energy, food and natural resources would affect economic growth in the next six months.

Severed ties

Trading volumes rose across all of Trafigura’s main commodities, with the company handling a record volume of 7.3 million barrels a day of crude and refined products, the equivalent of about 7% of global supply.

That was a 14% increase from 2021, while it also traded 16% more metals and 13% more minerals.

The oil volumes may potentially decrease after March, however, as the company has severed the majority of its ties with Russia, where the privately held company was the largest trader of crude from Moscow’s state-backed oil champion, Rosneft, before the invasion.

The heightened volatility in commodity markets created some strains for the company, with soaring prices forcing Trafigura to extend its credit lines to “record levels” to cope with the higher cost of buying and selling.

Rising prices have also increased the amount of cash traders need to pledge against the future contracts they use to hedge long-term contracts.

Trafigura’s total credit lines reached a record $73 billion at the end of March, split across 140 banks globally and up from $66 billion at the end of September, the company said.

Underlying earning margins, a measure of performance for commodity traders, slipped to 2.8% in the period, from 3.8% in 2021.

The increased cost of hedging due to elevated margin calls had in some cases hindered access to commodities futures markets, Weir said, adding that the situation would continue to make it harder for all participants to move physical commodities.

Copyright The Financial Times Limited 2022