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Large commodity traders are looking to diversify their businesses, using capital built up during years of record profits to invest in oil, gas, power and metals assets. 

Trading giants such as Gunvor, Mercuria, Trafigura and Vitol reported record profits in 2022 and 2023, propelled by a period of intense volatility following the pandemic and Russia’s invasion of Ukraine. 

Market conditions have largely stabilised since then, but traders have used the funds generated during that period to develop increasingly diversified business models. 

Trafigura chief financial officer Stephan Jansma said the company’s financial performance “has reached a new cruising altitude”. 

“That cruising altitude is significantly less than the two years which were a very high profitability, but also it’s significantly higher than the profitability we had before the Covid period,” he said at this week’s Financial Times Commodities Global Summit in Lausanne. 

“Why do we have higher profitability? It’s got to do with the fact that we’re way more diversified than we previously were.” 

One strategy has been to look beyond traditional trading activities and invest in assets, such as oil refineries and terminals, or mining operations. 

In Trafigura’s case, Jansma said that of around US$20bn in profits generated over the last four years, around half has been allocated to capital expenditure and shareholder returns, with the rest used to strengthen the trader’s balance sheet. 

Gunvor is also “starting to add physical assets to build a trading platform”, said group chief financial officer Jeff Webster, at the same event. 

Pointing out that bumper profits across the sector have attracted new market entrants and prompted expansion by existing players, Webster said: “If you can’t compete in a spot market when it’s so competitive, you need structural positions, you need long term relationships.  

“You need assets that produce steady flow, some form of steady income. We’re looking very much at investing in such assets that will complement our trading business, physical assets on both oil and gas, renewables… and metals as well.” 

Last year, Trafigura was part of a consortium that acquired France’s Fos-sur-Mer refinery from an ExxonMobil subsidiary, and the company also purchased Greenergy’s European and Canadian businesses, which include a manufacturing facility in the Netherlands and a roadside fuel distribution network in the UK. 

In October, Gunvor completed the acquisition of a 75% stake in a Bilbao-based power plant, Bahía De Bizkaia Electricidad, marking its first investment in a power generation asset. It also acquired TotalEnergies’ 50% stake in Pakistan’s Pak-Arab Refinery Limited. 

Vitol has snapped up Italian refining company Saras, as well as Adriatic LNG, Italy’s largest liquefied gas terminal. 

At Mercuria, group chief financial officer Guillaume Vermersch said the company is focused on “unlocking value around assets without specifically being the owner of that asset”, for instance by becoming a minority participant or helping deploy credit and debt instruments. 

Though there are nuances between traders’ strategies, Vermersch said it is “all about… the stronger balance sheet, stronger equity, and learning a lot from that high-volatility period”. 

McKinsey says in a report published last month that asset acquisition by commodity traders “will likely accelerate in the near future”, both in energy and metals. 

In the metals sector, McKinsey noted that traders are using their capital to support mining projects by providing pre-payment and early-stage financing in exchange for agreed offtake. 

Mercuria’s Vermersch said this approach is “part of the value add” traders are bringing to the mining sector, along with risk and liquidity management and market expertise. 

At Gunvor – one of several large traders to have re-entered or expanded its presence in the metals market over the past year – Webster said pre-payment facilities are “one of the ways we’re looking at” entering the sector. 

Meanwhile, traders are continuing to diversify their sources of financing.  

Revolving credit facilities (RCFs) continue to grow in size – Jansma noted Trafigura’s European RCF, the “cornerstone of our facilities”, closed at a record US$5.6bn this month – but said far greater backing is now coming from export credit agencies (ECAs). 

“ECAs have found us as a reliable partner and hence we’ve done US$6bn of ECA-funded facilities over the past few years,” he said. “That’s been a new source of funding for us to facilitate longer-term trades into those countries.”