Metal traders’ enduring pain undercuts all the super-cycle hype

LONDON: The world’s metal traders are enduring one of their toughest periods in years, even as an international race for minerals thrusts the industry into the geopolitical spotlight like never before.

From top copper trader Trafigura Group to the largest metals-specialist hedge fund, a who’s-who of powerful and high-profile names have lost money, cut staff or suffered other setbacks in the past year.

It’s a disconnect that’s likely to dominate conversations as thousands of traders, financiers and investors descend on London for the annual London Metal Exchange (LME) Week.

On the one hand, governments around the world are growing increasingly concerned about the future availability of metals like copper, nickel and cobalt that will be critical to the energy transition.

Yet for the past year, weak industrial demand has kept prices under pressure, leaving traders struggling to eke out profits from sluggish metals markets.

“It’s dawning on people they’ve talked themselves into a super-cycle that isn’t happening,” said Concord Resources chief executive officer Mark Hansen, whose firm reported its first-ever loss last year.

“The environment is the most complicated and tricky for metals trading that I’ve ever seen.”

The Orion Commodities Fund, the largest metals-focused hedge fund, was down 4% in the year through August, according to an industry report.

Its assets under management have dropped by more than a third in the past year to US$1bil.

Operating profits at Trafigura’s metals unit were down 68% year-on-year (y-o-y) in the 12 months to March as it recorded a loss of nearly US$600mil as the victim of a massive alleged nickel fraud.

Its metals division is expected to take further hits when it reports results for the half-year that ended in September, people familiar with the matter said.

A person close to the company said that the underlying performance of its metals and minerals trading remains good.

The challenges aren’t just a function of a lacklustre economy.

While demand has disappointed expectations, including in top-consumer China, it hasn’t yet fallen off a cliff.

The result is a lukewarm market that is neither strong nor weak enough to create lucrative trading opportunities.

Rising interest rates are lifting costs and hurting traders who signed long-term deals before the hiking cycle began.

What’s more, a series of alleged frauds and deals gone wrong have shaken some of the best-known names in metals trading.

The mounting pressure also has significance beyond the traders themselves.

The industry forms a vital link in the web of miners, processors and end-users like manufacturers and builders, which all rely on the companies to buy, sell and transport metals around the world.

Some big players have continued to notch up solid gains, but they too have acknowledged a downturn in profitability.

“It has been a trickier year and you’ve seen lower margins in metals trading,” Gary Nagle, chief executive of Glencore Plc, which vies with Trafigura for the title of the world’s largest metals trader, told journalists in August.

Earnings before interest and tax at Glencore’s metals and minerals trading unit were down 36% y-o-y to US$1.5bil in the 12 months through June, the weakest 12-month period since 2019.

IXM, the third-largest metals trader, reported a net profit of about US$19mil last year, the weakest in more than a decade, although it has recovered somewhat, reporting profits of just over US$40mil in the first half of this year.

Still, many remain optimistic about the future, and some trading companies are seeking to expand into metals even now.

Energy trader Gunvor Group Ltd is re-entering the market and has hired veteran trader Ivan Petev to run its base-metals business, Bloomberg reported last month.

“Is that something that’s here to stay?” asked Glencore’s Nagle about the subdued metal trading conditions.

“No, I don’t think so. I think it’s an indication of market conditions today,” he said. “I don’t think that’s an indication of the future necessarily.” — Bloomberg