Commodities traders are using the bumper profits earned during the energy crisis to snap up assets and bet on new businesses, from petrol stations to power plants, in a shift that increases their hold over complex global supply chains.
Leading private trading houses Trafigura, Vitol, Gunvor and Mercuria have collectively earned more than $57bn in net profits since the 2022 invasion of Ukraine, with Vitol still to report its 2024 results, according to Financial Times analysis — and now they are on a mission to spend it.
The companies are expanding into new areas such as metals trading, taking big bets on nascent sectors such as biofuels, and buying up more fixed assets including ships and refineries, according to an FT review of recent deals.
Marco Dunand, chief executive of Mercuria, says the boom years were “exceptional times” that allowed the company to build reserves and diversify its investment portfolio.
“We are now looking at five to 10 projects, where the size of the ticket would be half a billion dollars or more,” he said, speaking at the FT Commodities Global Summit last week. “That’s something we certainly could not afford to do, without this extra profit we made.” Mining and logistics infrastructure were of particular interest, he added.
While the trading houses have their roots in oil, some of the recent investments are efforts to diversify and tap into the energy transition.
Mercuria, Gunvor and Vitol have started to build out big metals trading teams to tap into growing demand for copper and aluminium that are vital for the clean energy switch, competing with incumbent Trafigura, the biggest private metals trader.
As privately owned companies, the trading houses — which are among the largest companies in the world in terms of revenues — have made hefty payouts to shareholders, who are typically their founders or employees, and invested in upgrading their internal trading platforms.
The firms are also using the opportunity to sharpen their edge at a time of rising competition in the market, particularly from hedge funds such as Citadel and Millennium that have rapidly expanded into commodities in recent years.
“The dominance of the largest traditional traders is weakening,” said Adam Perkins, partner at consultancy Oliver Wyman. He estimates that the top 10 traders have collectively lost about 10 percentage points of market share since 2019, partly due to new entrants as well as producers and consumers who are doing more trade themselves.
“The investments that we have seen have really been about reinforcing the core business,” said Perkins, pointing to purchases such as ships and refineries. “It increases their relevance and it will increase their longevity.”
Last year gross profits for the industry were about $95bn, a lower level than the previous two years but still 2.5 times higher than the average level during 2011-2019, according to a recent report from Oliver Wyman.
Jeff Webster, chief financial officer of Swiss trading house Gunvor, acknowledges that the recent period of high profits has attracted more competition and new entrants into the market.
He points to the hedge funds that have been expanding their trading of commodities. “In some ways we’re going the other way, we’re starting to add physical assets to build our trading platform,” he said.
In a demonstration of the extraordinary profits generated by the energy crisis, Gunvor’s 2024 net profit of $729mn, announced on Tuesday, was in line with 2021 but less than a third of the record $2.4bn it made in 2022 and a little over half the $1.25bn it banked in 2023.
Gunvor, though smaller than rivals Vitol and Trafigura, has directed its record earnings into new businesses. Last year it acquired a 50 per cent stake in Total Parco, a network of more than 800 petrol stations in Pakistan, from TotalEnergies, and a 75 per cent stake in a gas-fired power station in Spain.
Chief executive Torbjörn Törnqvist told the Financial Times that Gunvor was also looking to increase its ownership of upstream gas production in the US, adding that the “pace of investment” by trading houses in physical infrastructure had increased in recent years.
Controlling infrastructure such as power stations and refineries allows traders to boost profits because of the additional market knowledge they gain by operating the assets, and because of the ability to dial production up or down to match market conditions or the needs of their trading book.
Vitol, the world’s largest independent energy trader, made $13.2bn in net profit in 2023, which was more than UK oil major BP. That followed a record $15bn in 2022.
It has used those profits to acquire new assets across the energy sector including the largest refinery in the Mediterranean, BP’s retail fuel network in Turkey and the South African downstream oil company Engen. In total Vitol now owns almost 10,000 petrol stations.
This week, Vitol-backed Varo Energy made a $2bn acquisition of Preem, a Scandinavian energy company with an extensive biofuel business, in the latest example of a trading house betting on the fuel. Vitol owns one-third of Varo, with the Carlyle Group owning the rest.
And last month the trader announced a $1.65bn deal to acquire part of an oil project in Ghana, and an LNG development in the Republic of Congo operated by Italy’s Eni.
Chief executive Russell Hardy said Vitol bought its first refinery in 1994 but acknowledged the size of the business’s asset portfolio had increased significantly in the past three years.
The ability to supply and offtake from an enlarged network of owned oilfields, refineries and petrol stations had always been a key part of Vitol’s strategy, Hardy said. “We do have more assets, we do have more integration of those assets with our trading business . . . and it’s been good overall for the business.”
For Trafigura, the biggest private metals trading company, new chief executive Richard Holtum said there was a limit to how much more the company would want to buy.
“We have $10bn of assets and we have 700 traders globally, and pretty much all of those traders keep coming to us with ideas of more assets to buy,” he said. “But you don’t want to increase your fixed asset base too much.”
The company has made about $20bn in profit over the past four years — about half of that has been reinvested in the equity of the balance sheet, with the rest available for capital expenditure and for shareholder returns.
Trafigura’s profits have been dented by two huge fraud cases — a $600mn nickel scandal in 2022 and a $1.1bn loss in Mongolia due to alleged fraud, which came to light last year.
Nevertheless, recent Trafigura deals include buying UK biofuels company Greenergy, purchasing the Fos-sur-Mer refinery in France from ExxonMobil’s Esso, and snapping up a gas-fired power plant in Texas.
One of Holtum’s first initiatives since becoming chief executive at the start of this year has been to streamline the company’s operational assets, which have been reorganised into a new asset division led by Jiri Zrust, a former Macquarie executive. He has also put some underperforming assets, including Nyrstar Australia, under review.
“We are doing a strategic review of some of our struggling assets,” said Holtum. “There are no sacred cows here.”
Additional reporting by Camilla Hodgson