
The world’s largest commodity traders are betting on metals. Trading houses traditionally more focused on energy are rapidly growing their metals desks and striking deals to secure long-term supply. John Basquill examines the market forces behind the excitement around copper, aluminium and other materials, and the implications for the wider trading and financing landscape.
After a lukewarm couple of years, metals trading is heating up. Trafigura and Glencore have historically been the two largest players in the metals market, but several of their rivals – best known for their focus on energy – are now turning their attention to the sector.
Ahead of an anticipated shortfall in supply of metals needed to support the energy transition, a growing number of traders are building out metals desks, acquiring other trading houses or seeking out opportunities to secure longer-term resources.
Mercuria has been active in metals for over a decade, but appears to have adopted a far more ambitious growth strategy in the second half of 2024. In June, the Geneva-headquartered trader brought in former Trafigura metals co-head Kostas Bintas – widely seen as a bullish voice in the copper market – to help lead a team of newly hired traders.
According to Bloomberg, Mercuria’s metals desk generally has comprised four or five traders over the past decade. Yet Reuters reported in September that the team had already grown to 40 people.
Fellow Swiss trader Gunvor has also re-entered the market, having shut down its base metals trading business in early 2016 citing lower profitability and increased risk.
The company has already brought in several experienced metals traders. In September 2023 it appointed former VTB Capital and Castleton Commodities managing director Ivan Petev as global head of base metals, then in February last year hired George Donoghue from JP Morgan.
In May the company brought in Paolo Cabrejos, most recently a metals trader at Traxys, and Michael Gerard, previously a trader of copper concentrates at IXM.
Vitol, meanwhile, has brought in two former base metals co-heads from rival Mercuria, and according to Bloomberg has been seeking to hire ex-Glencore and Trafigura iron ore traders. It has also agreed a deal to acquire Singapore’s Noble Resources, which trades in energy products and industrial raw materials.
Vitol’s chief executive, Russell Hardy, told the FT Commodities Asia Summit in November that the company “quite like[s] the idea of being involved in the bigger metal markets”.
On the Noble acquisition, Hardy said: “We get a great team of people. We get, hopefully, a whole array of new customers, some of which are in that metal space. So we hope to be able to use that to catalyse our entry into those markets.”
Even French power trading giant TotalEnergies is eyeing metals. The Financial Times reported in October that senior vice-president of crude, fuel and derivatives trading Rahim Azouni told a closed-door event the company has been “studying the case” for entering the copper trading market.
Anton Posner, chief executive of commodities-focused logistics consultancy Mercury Resources and a board member of the International Trade and Forfaiting Association’s American regional chapter, says the “hiring frenzy” has been palpable across the industry.
“I’m getting calls from friends at various companies all trying to hire people, asking if I know anyone they should be targeting,” he tells GTR. “They’re looking for good, experienced metals traders, as well as operations, logistics and freight people. There is a lot of activity right now.”
Demand and volatility
Much of the excitement around metals trading stems from the energy transition. A move away from fossil fuels, a build-out of electricity infrastructure and a rise in battery usage is expected to result in surging demand for copper, nickel, lithium and a host of other materials.
However, supply from new and existing mines is unlikely to keep pace. McKinsey said in a September report that it was projecting a 10-20% supply shortfall for copper, as well as 30-40% for lithium and rare earth elements, by 2035.
“Whether the energy transition is going to be faster or slower than expected, it’s nevertheless happening,” says Jean-François Lambert, founder and managing partner of Lambert Commodities.
“The future is with power, and all the ways to produce and convey electricity. So if you’re a successful energy player, now is the time to start hedging your bets and acknowledging the fact that your business model around oil, gas and products is going to be increasingly challenged,” he tells GTR.
“Whereas a few years ago, we saw Gunvor or Vitol going into metals then moving out after a few years, I don’t think that will happen again this time. This is a concrete step, and they cannot retrench from it any time soon.”
Energy companies “know that they need to have a foothold in the energy transition and beyond fossil fuels”, adds Mercury Resources’ Posner. “They know that they need to be in the game. How much is a question, but they’re jumping in.”
Vitol’s Hardy said at the Financial Times event that the company believes its oil business is likely to peak in around a decade’s time, whereas metals trading “is going to have a great deal of growth through the electrification phase”.
“There is a bit of a yin and a yang with the movement and growth within the petroleum sector, and the likely movement and growth in the metal sector,” he said.
Large traders are also in a strong position financially, having posted record profits across 2022 and 2023 and, according to consultancy Oliver Wyman, were able to build up cash reserves totalling as much as US$120bn by early 2024.
Growth strategy
But why now? The imbalance between supply and demand in the critical metals sector has been an established concern for several years.
Long before the flurry of activity in the second half of last year, industry experts were calling on commodity traders to do more to finance longer-term supply, yet underwhelming price movements have acted as a drag on investment.
An increasingly attractive prospect for the largest traders is a scenario where market uncertainty, supply chain disruption and swings in prices mean they can apply their expertise in the capital markets to trade materials while making significant sums of money.
That was the case in the bumper years of 2022 and 2023, when Russia’s invasion of Ukraine triggered a reshaping of global energy supply chains, particularly in gas.
“They are going where the volatility will be,” says Lambert. “The angle is: give me volatility, and I give you an ability to create profits. That’s why they are acquiring all these teams. They will bring a different set of expertise.
“But this move is not to cater for immediate volatility. It’s taking a more strategic perspective. I need to build my teams now, because the minute there is volatility, if I don’t already have the ability to respond and take advantage, I’m out.”
Simon Huber, group treasurer and global head of structured commodity finance at metals trading house Bluequest Resources, says he expects large traders to start building their presence in the market by taking large positions at aggressive prices.
“Even with the cost advantage they have, it will be hard to make a lot of profit on these deals without taking high risks on treatment charges and premiums,” he tells GTR.
“They may break even or make small profits, but it’s all about entering and dominating the market to build a sizeable trading book. The big money is to be made later.”
Does that mean smaller and mid-sized traders might benefit from an expanding market, or will they be squeezed out by larger competitors?
“Is the size of the cake growing because these traders are getting into the market?
I don’t think so; the cake is more or less the cake, and we have always had larger and smaller trading companies,” he says.
“They will face heavy competition from each other, and don’t forget that there are also the established large metal traders. Everybody has deep pockets and can survive a price war for a long time.”
For Bluequest, a mid-sized trader, Huber says there are “enough other opportunities where the large players have little interest but that can be very profitable for a company our size, and we stand ready in case there are opportunities to take market share from the larger deals”.
Hedging your bets
Copper is widely expected to be a major area of focus as commodity traders pursue an expansion into metals trading.
As Lambert points out, demand for copper “can only grow” and there is a shortage of significant mining operations, although persistent high prices could push focus towards recycling rather than new supply.
Mercury Resources’ Posner says aluminium is also proving “pretty significant”.
Large traders “all have a heavy aluminium focus right off the bat; it’s not just copper”, he says.
And Vitol’s Hardy said in November that copper and aluminium – along with steel and iron ore – are “the three bigger metal markets… and they trade in the most similar way to the types of business that we do today”.
A director at a mid-sized energy trader told an industry event late last year there is likely to be “major volatility on all the battery metals, nickel and so on”.
But metals that are potentially easier to produce, or those that are not backed by sophisticated capital markets, may prove less attractive.
“I’m not sure that all these new traders coming back to the business are going to go massively to lithium, or commodities that are a bit less liquid and probably not hedgeable,” they said.
Ultimately, much will be determined by a combination of technology developments – such as which materials are used in batteries, electric vehicles and other applications – and changes in upstream supply, both of which are hard to predict.
Asked whether he expects Vitol’s metals activity to grow as large as its energy business, Hardy said: “It’s going to be a long, difficult process. It’s a competitive market. We’ll have to find… our pathway in it, and so it will be a gradual build-up, I think, over the next five years.
“The metals markets are not as big as the energy market. We’ll always have ambition, but it’s a 10-year ambition. We’re not going to put any pressure on ourselves to be in a particular place in three years or five years.”
Pre-financing in focus
Commodity trading heavyweights typically encounter little difficulty in obtaining trade finance and working capital facilities from banks.
Posner says it can prove slightly tougher for the fossil fuel sector, particularly in coal, where traders are “digging up other sources of finance” due to sustainability concerns among lenders – but in metals, “you get your pick”.
However, many smaller and mid-sized traders that typically specialise in niche products or trade corridors continue to face challenges accessing bank lines.
This dynamic has created a scenario where large traders are looking to lean on their hefty cash reserves and provide pre-payment facilities to upstream providers of materials.
Pre-payment financing typically involves a lender of some kind providing capital upfront to support production in exchange for an offtake agreement.
Banks have become less forthcoming in providing these kinds of structured facilities, in no small part due to regulatory pressures, Lambert says, but for traders, securing such long-term contracts is “one way to differentiate from your competitors”.
Speaking at an industry event held under the Chatham House Rule, a representative from a large trading company said: “It’s maybe more a question of how do you reinvest your cash profits? How do you expand your business? Do you add on strategic fixed assets that support your trading activities, or do you secure access to some strategic flows?
“That’s where the pre-financing comes in. It’s not necessarily what I would consider financing your customers, but it’s providing pre-financing structures to producers of commodities. That is definitely something that we’re actively pursuing to grow our business and to find new trading opportunities.”
Mercuria’s Bintas told the Financial Times Africa Summit in October that the trader would be “very present in Africa and putting our money where our mouth is in respect of the copper belt”.
Bloomberg reported in April that Vedanta Resources was seeking to raise as much as US$1.4bn to revive copper mining and smelting activities in Zambia, as well as to settle obligations with suppliers, and had approached trading houses, including Mercuria.
In September, Glencore – along with the London branch of Bank of China – agreed a US$150mn pre-export finance facility with Kazakhstan-backed Eurasian Resources Group, to support the production of copper from the Democratic Republic of the Congo.
Trafigura has announced several pre-payment deals in recent months, including a US$400mn facility for iron ore with mining company Mineral Resources and a A$100mn facility for copper and zinc with Develop Global, both of which are based in Australia.
Trafigura’s financial report for H1 2022/23 shows its pre-payment assets total more than US$3.5bn, up from US$700mn just over a decade ago. In effect, pre-payments due are gradually reduced as cargo is delivered and sold on, eventually reaching zero once the agreement has been fulfilled.
For Bluequest’s Huber, large traders are likely to focus on striking high-value deals with major mining companies, where they can “take full advantage of their infrastructure, logistics, insurance and financing abilities”.
Pre-financing facilities alone may not be sufficient to ensure mining capacity reaches the levels required to meet forecasted demand, however, with new operations still facing a shortfall of funding.
Speaking at November’s GTR Africa London event, Simon Munns, head of institutional sales at SD Capital, said: “Offtake is clearly an asset. But if you go to a typical trader, you have to have sight of when the mine is going to come into production, and that typically is an 18-month, 20-month window.
“They are not willing to take that risk when you are starting out in the greenfield site, to start doing your studies and your drilling. That’s a disconnect.”