Global commodity traders expect bumper year as pandemic shakes up markets

London — Global commodity traders expect 2020 to rank as one of their strongest ever in terms of profitability after benefiting from "unprecedented volatility" and market dislocations due to the coronavirus pandemic.

After posting record earnings from its oil and petroleum products division during the first half of the year, Singapore-based oil and metals trader Trafigura has been renewing and expanding its credit lines to take advantage of new trading opportunities, its chief financial officer Christophe Salmon said.

"2020 will probably be one of our best years ever in terms of trading profitability," Salmon told the FT Commodities Global Summit. "We've worked a lot during this year to maintain, even to increase, our access to liquidity in exceptional market circumstances."

Trafigura, the world's second-largest independent oil trader, saw its profit from oil trading more than double to $2.13 billion in the first half, its highest profit on record for the period.

Commodity traders such as Trafigura typically benefit from price volatility by arbitraging geographical and time spreads, which often spike during major global disruptions such as the 2008 global financial crisis and the 2015 oil price slump.

Brent crude prices collapsed to near two-decade lows below $16/b in April after sweeping pandemic lockdowns impacted demand and OPEC+ producers briefly abandoned their supply cut deal.

Rival trader Glencore benefited from "unprecedented volatility" in the first half of 2020 and expects its pre-tax earnings to come in at the top end of its $2.2 billion to $3.2 billion guidance range for the year.

"What we've seen throughout the year, on one hand, is the contango market structure that benefits all commodity traders, but also very strong core underlying profitability drivers at Gunvor that continue to pay off in the second half," Gunvor CFO Muriel Schwab told the event.

Markets stabilizing in second-half

The trading divisions of European oil majors have also reported strong earnings for the second quarter, largely helped by so-called "contango storage plays," where oil bought at lower prices is stored and sold later at higher values. French oil major Total has said that its trading operations made about $500 million above normal levels during the second quarter of 2020.

Guillaume Vermersch, the CFO at Mercuria, said he expects 2020 will be a "robust financial performance" for the trading house after "a very, very strong first half."

With oil prices stabilizing during the second half of the year, he said H2 would be "more stable" for the company.

"The business model of Mercuria is based on bringing solutions to correct those discrepancies and that's what we've done. We've done that in an extremely volatile market, and extremely broken market in some instances," Vermersch said.

Gunvor's Schwab agreed that the market has returned to more normal conditions in the second half, adding that Gunvor still expects to play a key role in balancing market dislocations.

Jeffrey Dellapina, the CFO at the world's biggest independent oil trader Vitol, was more circumspect over his company's financial performance this year, saying that it would be "good."

Dellapina cautioned, however, that the company will likely measure its performance during the pandemic over a two-year cycle due to the persistence of demand-side disruptions to key commodity markets.

Led by oil, the collapse in global commodity prices as the world went into lockdown, meant that the trading houses were not financially constrained in capturing the additional trading volumes during the second quarter, the traders said.

"Actually during the entire cycle, we essentially drew none of our revolving credit capacity. So, with lower prices and with the equity capital we have we sort of did it generally without a lot of bank capital," Dellapina said.