Commodity Giant Steps out of the Shadows

MarineLink.com
Thursday, April 17, 2014
Photo: Trafigura

A detailed new case study scrutinizing the risk-management Swiss-based Trafigura is the latest effort to "demystify" the once-secretive commodity trading industry, just big merchants seek to fill a void being left by Wall Street banks.

The study, "The Economics of Commodity Trading Firms," comes as U.S. regulators mull new restrictions on banks' physical commodity trading, a crackdown some large energy companies say would rob them of credit-worthy, transparent counterparties and leave them at the mercy of shadowy and risky firms.

Facing higher capital requirements and regulatory pressure, some banks like JPMorgan Chase & Co have already quit the business of shipping cargoes of crude and storing metal, opening an opportunity for the mostly privately-held trading houses like Trafigura and Mercuria to take up new customers.

"A number of these firms have become very large - too large to ignore, if you like," said Anthony Gowers, global head of corporate affairs at Trafigura, explaining the rationale for the study. "So even those of us who remain private companies feel the need to explain themselves somewhat more in public."

The firm approached Craig Pirrong, a well-known professor of finance and commodity markets commentator at the University of Houston, last July to commission an independent review of the commodity trading industry, with the goal of "demystifying" it.

The resulting 63-page report, based on public filings and interviews with around 10 senior Trafigura traders and a number of C-level executives last September, reached a conclusion similar to several previous reports: relative to Wall Street banks, merchant trading companies' size, function and balance sheets make them far less likely to be sources of systemic risk.

The finding itself is perhaps less surprising than the depth of detail laid out about a company that until last year had never issued a public annual report, in an industry that until the past few years had shunned the public spotlight.

Pirrong has studied commodity markets for 25 years, but said his sojourn in Switzerland provided his first glimpse into a trading firm's "inner sanctum."

"The way they characterized it was that this was sort of our 'coming-out,'" he said. "We haven't had that much of a profile in the past, and we're introducing ourselves."

He used Trafigura, a firm that recorded revenues of $133 billion in 2013 trading everything from oil to iron ore, as a case study to illustrate how trading houses manage the risks of storing, transporting and refining raw materials.

Among his findings: the firm normally has up to $1 billion posted at collateral with clearing houses; about 15 percent of all its trades are uncleared over-the-counter transactions; and it has invested some $550 million over the past three years to build the information technology system to manage its business.

The Dangers of "Shadow Institutions"

The study's central finding was that because commodity trading firms have stronger balance sheets, less leverage and a minimal role in supplying credit to the broader economy, they are not a significant source of systemic risk.

The study comes as the Federal Reserve solicits input for new rules that could pare banks' involvement in the raw materials supply chain over concerns that a catastrophic event could jeopardize the financial system.

In a series of letters, U.S. energy companies warned that pushing banks out of physical commodities will leave them doing business with unregulated entities.

"Recent history is filled with examples of the dangers of unregulated, shadow institutions taking on a large role in the financial system," according to one letter from natural gas industry groups.

Gowers said more transparency could dispel those fears.

"Probably the biggest reason for suspicion is that the industry has historically tended to say 'We're private, mind your own business,' and that's no longer acceptable," he said.

(Reporting by Anna Louie Sussman; Editing by Jonathan Leff and Meredith Mazzilli)

  • Photo: Trafigura

    Photo: Trafigura

Maritime Reporter September 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Exmar Optimistic About Gas Carrier Market into 2015

Belgian gas shipping group Exmar said on Thursday that the market for its very large and midsize gas carriers was at historically high levels in the third quarter

Rep. Cummings Receives Maritime Service Award

On Wednesday, October 29, Congressman Elijah E. Cummings (D-MD) delivered keynote remarks at APL Maritime’s Senior Management Conference, and received an award

LA Governor Jindal Appoints Bollinger's Barker

Louisiana Governor Bobby Jindal appointed James "Ray" Barker to the Louisiana Workforce Investment Council. Barker, of Raceland, is the Director of Human Resources at Bollinger Shipyards, Inc.

Finance

Exmar Optimistic About Gas Carrier Market into 2015

Belgian gas shipping group Exmar said on Thursday that the market for its very large and midsize gas carriers was at historically high levels in the third quarter

Confidence High in UK Logistics Sector

The latest U.K. Logistics Confidence Index commissioned by Barclays and Moore Stephens reveals that confidence in the U.K. logistics sector remains high but more

Statoil Invests $1.5b in US Offshore Project

Statoil together with co-owners in the Stampede development in the Gulf of Mexicohas sanctioned the Stampede project in the U.S. Gulf of Mexico. Statoil said it will invest $1.

Energy

Easing US Oil Export Ban Unlikey to Raise Gasoline Prices

A government study on Thursday essentially supported the notion that easing the decades-old restriction on exporting U.S. crude was more likely to lower than raise

Exmar Optimistic About Gas Carrier Market into 2015

Belgian gas shipping group Exmar said on Thursday that the market for its very large and midsize gas carriers was at historically high levels in the third quarter

Partners Deliver Modular Floating Tidal Energy Platform

A group of offshore companies, including Bluewater, Damen and Van Oord among others, has partnered for a floating tidal energy platform a project to generate clean electricity,

News

Easing US Oil Export Ban Unlikey to Raise Gasoline Prices

A government study on Thursday essentially supported the notion that easing the decades-old restriction on exporting U.S. crude was more likely to lower than raise

Keel Laid, Fabrication Started on 2 Navy Warships

This week, General Dynamics Bath Iron Works celebrated two milestone events for the Arleigh Burke-class program. On October 30, Bath Iron Works held a keel laying

Bulker Arrives to US on Her Maiden Voyage

The Port of Vancouver USA welcomed the Kypros Unity, commanded by Capt. Wilfredo F. Itable of Cyprus, on her maiden voyage Oct. 28. Capt. Itable and his 20-member

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Pipelines Port Authority Salvage Ship Electronics Ship Repair Ship Simulators Sonar
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2641 sec (4 req/sec)