Koch Is Working to Open Commodities Trading Desk in China

  • Global trading environment is `pretty tough right now'
  • Reiterates support for ending ban on U.S. crude exports

Koch Industries Inc. is working to open a commodities trading desk in Shanghai to take advantage of opportunities in China.

“China seems to be the growth area that we are most interested in right now,” Rob Short, chief information officer of Koch Supply & Trading, said in an interview at the Platts Global Energy Awards in New York on Wednesday. The unit is “working on” opening a Shanghai office, he said, without elaborating.

Faltering demand in China, the biggest buyer of metals and energy, has sent prices of raw materials tumbling. The Asian giant is expected to offer a yuan-denominated crude contract in 2016 in Shanghai, which will be its first commodity futures available to foreign investors.

While Koch is seeking to tap growth in China, globally “the trading environment is pretty tough right now,” Short said. “Prices are depressed, regulatory environments are overbearing” and there is less liquidity as banks and other participants exit the market.

The surge in domestic crude supplies from the shale boom has forced Koch, which was a net importer to the U.S., to “recreate” how its desks operate, said Short, who is based in the Wichita office. Shale oil is now displacing supplies that used to be shipped in on VLCCs, the largest class of oil tankers, to the Gulf Coast, he said.

Refining Boon

“Finding more good quality crude in the U.S. has been a boon, particularly for the refining business on the Gulf Coast,” Short said. “We struggled a little bit with our crude and gasoline desk for a while,” and adjusting to the new environment took “longer than it should have.”

Through Flint Hills Resources LLC, Koch operates a 293,000 barrel-a-day Corpus Christi refining complex, according to data compiled by Bloomberg. West Texas Intermediate crude prices are trading near their lowest level since 2009 because of a supply glut.

Koch Industries has advocated lifting the U.S. ban on crude exports. “Koch Industries in general supports open markets and I think we would like to see no export bans” for U.S. crude oil, Short said. “I know we are looking for opportunities to export.”

The company charters tankers and doesn’t own any. “We’ve been very active in the freight trading markets. It’s been a very volatile market the last few years and there’s been some really good opportunities there.”

The industrial conglomerate’s supply and trading unit has about 500 traders globally; the number has stayed at similar levels for the past five-to-six years, he said. In the U.S., the primary trading floors are in Houston, Manhattan and Wichita, Kansas. The unit also has trading floors in London, Geneva and Singapore. 

The desks, which are connected with each other by instant messaging to video conferencing, will trade anything that goes in and out of a refinery; natural gas and power primarily in Europe; and a large metals trading business in London, Short said.

Koch trades liquefied natural gas globally and is watching U.S. LNG exports for opportunities, he said.

Before it's here, it's on the Bloomberg Terminal.