Commodity Traders Vow Openness as Oil Volatility Brings BoomAndy Hoffman and Isis Almeida
The heads of some of the world’s largest commodity traders are vowing to increase transparency as the industry draws more scrutiny from regulators and investors.
“We are a large entity and our stakeholders are interested,” said Jeremy Weir, chief executive officer of Trafigura Beheer BV. “One of the things we will push is transparency.”
His appearance at the FT Commodities Global Summit in Lausanne, Switzerland, on Tuesday was the first time the company’s top executive has spoken at a public event.
Long criticized as opaque and secretive, commodity traders are promising more openness as their key role in global energy, food and metals markets attracts scrutiny. Trading houses including Trafigura, Gunvor Group Ltd. and Mercuria Energy Group Ltd. are investing in assets including refineries, storage facilities and pipelines and have tapped new sources of funding including bonds and partnerships with private equity.
Regulatory pressure on banks, which provide the lifeblood of the commodity trading sector through trade finance, have raised compliance standards and put pressure on traders to provide more information.
“Transparency is going to be an issue for everybody whether they are public or private,” said Yusuf Alireza, CEO of Noble Group Ltd., whose company’s accounting has been criticized this year by an anonymous research group called Iceberg and the short-seller Carson Block.
Fair Value Gains
Noble said Wednesday in a statement that it plans to increase disclosure in its first-quarter results to be announced May 7.
The company is considering disclosing accounting fair value gains and losses by region and product, it said. A lack of disclosure related to fair value gains related to long-term commodity contracts is one of the issues raised in the Iceberg reports.
Trafigura, the third-largest independent oil trader, has agreed to adhere to some principles of the Extractive Industries Transparency Initiative and disclose some payments made to national oil companies.
“We think the trading groups should be doing the same,” Weir said.
The trading industry was pioneered by figures such as Marc Rich, who founded the company that is now Glencore Plc. He fled to Switzerland just before being indicted on 65 charges that included wire fraud, racketeering and violating a U.S. embargo against trading with Iran. Rich was pardoned by President Bill Clinton in 2001.
Leaders of the industry gathered in Lausanne with commodity traders on track for one of their best years since the financial crisis.
Increased oil price volatility and markets in contango, where current prices are lower than those on futures markets, have created the most favorable conditions for oil traders in more than four years. As banks exit or scale back their physical commodities business due to regulatory pressure, the independent commodity trading industry has become more visible.
Marco Dunand, CEO and co-founder of Mercuria, which bought the bulk of JPMorgan Chase & Co.’s physical trading assets for $800 million last year, said his firm has agreed to have some of its European natural gas and power trading business regulated by the Financial Conduct Authority in the U.K. The regulator recently conducted an audit of Mercuria.
“We have been very proactive with the Swiss government and non-governmental organizations to bring transparency to the industry,” said Dunand. “You have a real suspicion of the trading industry from the general public that has to be answered.”
Trafigura’s Weir confirmed Tuesday that the company had stopped doing business in Nigeria. NGOs including the Swiss-based Berne Declaration criticized swaps deals Trafigura had conducted there to exchange refined petroleum products for crude oil because the non-cash deal took place outside regulations for banks providing trade finance.
At the same time, Weir and Trafigura are increasing their oil trading business with Russian companies including OAO Rosneft, the state company sanctioned by the U.S. in response to the Ukraine crisis. The new Russian deals comply with sanctions, Weir said.
Noble Group, Asia’s largest commodity trader, has faced criticism in recent months for a lack of transparency in how it accounts for some of its trading business deals.
Noble last year sold a majority stake in its agriculture business to China’s Cofco Corp. and other investors for about $1.5 billion. The deal makes Noble’s operations more streamlined said Alireza, a former Goldman Sachs Group Inc. executive.
That doesn’t mean Noble is now an easy company to understand, he said.
“Our business is not a simple business and no level of transparency is going to make it look like a simple business.”