Commodity Trading to Consolidate as Earnings Fall, Report Shows
Oct. 6 (Bloomberg) — Commodity trading consolidation will cut the number of major players to two or three in each asset class as the industry becomes less profitable, according to Oliver Wyman Group.
“We predict that soon only two to three will remain due to an increasingly cutthroat environment,” consultant Oliver Wyman said in a report published today on its website.
Independent traders are facing increasing competition from oil majors and national energy companies seeking to monetize production and consumer companies trying to gain greater control over their supply chains, Oliver Wyman said. Traders are competing to secure flows of materials from coal to zinc by offering output deals with producers as margins shrink due to lower price volatility and more transparent markets.
Vitol’s acquisition of refineries and petroleum storage in Australia and Africa from Royal Dutch Shell highlights the trend, according to Oliver Wyman. Vitol, the world’s biggest oil trader, also helped finance a plan to switch a power plant owned by the U.S. Virgin Islands’ Water and Power authority from fuel oil to liquefied petroleum gas to secure seven years worth of LPG orders, the report said.
While agricultural commodities trading is dominated by the so-called ABCDs — Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Commodities BV — Chinese firms are pushing to secure food supplies for the world’s largest commodity market, according to the report. China’s Cofco Corp. agreed in April to pay $1.5 billion for a majority of Noble Group Ltd.’s agricultural trading unit, after acquiring control of Dutch grain trader Nidera BV two months earlier.
Trafigura Beheer BV, one of the firms that dominates metals trading, has secured output deals with miners, including one with Rio Tinto Plc’s Oyu Tolgoi copper mine in Mongolia, in exchange for financing. Trafigura, Glencore Plc and Vitol have struck oil contracts with OAO Rosneft in exchange for financing.
To contact the reporter on this story: Andy Hoffman in Geneva at ahoffman31@bloomberg.net To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Dylan Griffiths, Reed Landberg
