Trafigura First-Half Profit Falls 10% as Oil-Trading Boom Fades

  • Company’s oil volumes surge 46% to 4 million barrels per day
  • Metals profit down but signs of turnaround, CEO Weir says

Trafigura Group Pte said fiscal first-half profit dropped 10 percent as an oil-trading boom fades, even as volumes increased to a record 4 million barrels per day.

Net income fell to $602 million in the six months to March 31, from $672 million a year earlier, Trafigura, based in Singapore and with major trading operations in Geneva, said Tuesday in a statement.

The results were “satisfactory” even if the company “did not match the numbers achieved in the exceptional trading conditions in the first half of 2015,” Chief Executive Officer Jeremy Weir said in the statement.

Trafigura reported record profit from oil and petroleum-product trading in the last fiscal year as the company’s traders took advantage of arbitrage opportunities created by price swings, while locking in returns by storing cheap crude for delivery at higher prices in the future. That contango market structure and continued price volatility meant the first half of the year remained a “favorable” environment for oil trading, Weir said.

“With U.S. production falling sharply and demand continuing to grow strongly, for example for gasoline in the U.S. and China, the much-anticipated rebalancing of supply and demand now seems within reach,” the CEO said.

Oil Share

Gross profit from the oil and petroleum products division fell 22 percent to $787 million in the first half, even as volumes climbed 46 percent. Oil still accounted for 62 percent of Trafigura’s total revenue, which declined 8.5 percent to $44 billion amid lower commodity prices.

The company has benefited from increased oil flows from Russian state producer Rosneft OJSC. It struck long-term arrangements to handle oil from the Moscow-based company -- sanctioned by the U.S. over Russia’s role in the Ukraine conflict -- by ensuring payments are no longer than the 30 days permitted under sanctions.

Gross profit from metals and minerals trading dropped 24 percent to $386 million on revenue of $16.7 billion. Volumes were steady and Weir said the market was improving.

“There were more positive signs in some segments during the first half,” said Weir. “In zinc concentrates, a long-anticipated supply deficit has arrived, while aluminum stocks are drawing down as capacity shutdowns take hold, and even in nickel, previously among the hardest hit metals, a deficit has emerged on rising demand and falling supply.”

Offtake Deals

Trafigura added supply and offtake agreements during the period with Nyrstar NV, a zinc smelting company in which it’s the largest shareholder. It further expanded its involvement with the Belgium-based metals producer by taking over a marketing agreement that was previously handled by Noble Group Ltd.

The gross trading margin for both metals and oil shrank to 2.7 percent from 3.1 percent a year earlier. Gross profit fell 23 percent to $1.2 billion from $1.5 billion. Earnings before interest, taxes, depreciation and amortization was $821 million, down 27 percent from the year before.

The closely held trading house is owned by a group of 600 employees. Its largest shareholder, co-founder and former CEO and Chairman Claude Dauphin died from cancer in September. The company has said it plans to buy out his stake of less than 20 percent.

Trafigura said it has created two new management committees, one to oversee the trading business and another to oversee investments.

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