Oil Trader Trafigura Thrives Amid Virus as Profit Jumps 27%

(Bloomberg) --

Trafigura Group reported a 27% gain in half-year net income as the commodities trading giant benefited from supply and demand disruptions created by the coronavirus pandemic.

The results, for the six months to March 31, offer a glimpse into how some of the biggest traders of raw materials are faring during the public health crisis that caused prices from copper to diesel to plummet. While bigger rival Vitol Group’s earnings suffered, Trafigura made the most of the price fluctuations.

“This disruption in market conditions creates volatility on which Trafigura managed to thrive,” Chief Financial Officer Christophe Salmon said.

The world’s second-biggest independent oil and metals trader said net income climbed to $542 million, helped by a record performance from its oil-trading division. That offset writedowns including at the Nayara Energy refinery in India and the Puma Energy fuel-station business, and a $137 million loss from the Nyrstar zinc-smelting unit.

Gross profit from oil trading more than doubled to $2.13 billion from $1.04 billion a year earlier, the Singapore-based trading house said, as it took advantage of arbitrage opportunities created by supply disruptions in late 2019 and demand destruction as the virus spread earlier this year.

Trafigura continued to benefit from the unprecedented situation in the oil market even after March. As countries locked down to tackle the pandemic, demand fell away in April. That threatened to fill up storage, including for oil, and even briefly drove crude in New York below zero.

Trafigura, one of the largest exporters of U.S. crude, had enough storage and freight capacity to take advantage of the situation, the company said. It could buy up very cheap cargoes and ship them to countries where prices were higher.

There could be more profit to come. Trafigura’s oil and products traders, like Vitol’s, rushed to fill up tanks as prices crashed and the market moved to a so-called contango structure, allowing them to lock in earnings by selling forward futures contracts at higher prices.

Metals, Minerals

Trafigura’s gross profit from metals and minerals trading also more than doubled during the first half, rising to $998 million from $437 million the year before.

Overall gross profit margins surged to 3.8% from 1.7%. That came as gross profit jumped to $3.12 billion from $1.47 billion. However, the increase was boosted by a change in accounting standards that added $481 million. The consolidation of Nyrstar added another $370 million.

The impact of Covid-19 wasn’t all positive for the company’s finances, as the virus took a toll on some of Trafigura’s fixed-asset investments.

Refining margins plunged to record lows during the pandemic and Trafigura said it took an impairment charge of $287 million on its stake in the Nayara plant. It also further lowered its valuation for the troubled Puma Energy business -- in which it now owns a 55% stake -- by $293 million to $1.45 billion.

The company said it wouldn’t consolidate Puma on its books despite having a majority stake after Cochan Holdings, an entity controlled by a former Angolan general, reduced its share.

Even after the stake increase, Trafigura still has three representatives on Puma’s eight-person board and said the transaction did not alter an existing shareholder agreement.

“Therefore, the increase in Trafigura’s shareholding did not result in Trafigura gaining control over Puma Energy,” the company said in the report.

Trafigura, which has drawn scrutiny for its debt leverage compared with some of its rivals, said total borrowings were $30.84 billion, down slightly from $31 billion at the end of its fiscal 2019.

Salmon said the company expects the fallout from the pandemic to continue dominating in the second half of the year, with demand for commodities recovering further even as geopolitical events boost price volatility.

©2020 Bloomberg L.P.