Trafigura Profit Falls on Lower Margins
December 07 2016 - 8:20AM
Dow Jones News
Commodities trader Trafigura Group Pte Ltd. reported a fall in
2016 annual net profit on Wednesday, as falling margins outweighed
buoyant trading volumes in oil and metals.
Profit at the privately-held trading firm fell 12% to $975
million in the financial year ended Sept. 30. Gross margin narrowed
to 2.3% from 2.7% the previous year.
Earnings before interest, taxes, depreciation and amortization
were down 13% to $1.63 billion, having hit a record in 2015.
Chief Executive Jeremy Weir said the company's oil trading
division had benefited from volatile conditions, while the metals
market was more challenging.
Oil markets have been particularly volatile over the past year
with prices ranging between over $50 a barrel to below $30.
Last year, many oil traders benefited from so-called contango,
in which prices are higher in future versus the spot price, which
benefits those who can store crude. But that proved less profitable
this year.
"The year before 2016 there was exceptional market conditions
due to contango," said Christophe Salmon, Trafigura's Chief
Financial Officer.
The world's third-largest independent oil trader recorded a
sharp rise in traded volumes, with oil up 42% to a daily average of
4.3 million barrels, while the metals and minerals division was up
13% at 59 million tons. Trafigura's oil trading volumes have more
than doubled since 2012.
The company's volumes were likely boosted by its close
relationship with Russia's state-controlled oil giant PAO Rosneft
in a period when that country's oil production was at post-Soviet
Union records. Trafigura is the largest buyer of oil and products
from Rosneft.
The companies strengthened ties in October with the purchase of
India's Essar Oil Ltd. which could further boost Trafigura's oil
trading volumes in future.
"We want to be positioned as equity owner of a world class
refinery in India, a market that is growing by more than 10% a
year," Mr. Salmon said.
Trafigura, like other traders, including Vitol Group, Gunvor
Group and Mercuria Energy Group, limits its exposure to commodity
price direction by holding fewer production assets than oil majors
and mining companies. It instead focuses on physical trading which
benefits from market volatility. Even so, the firm recorded
impairments of $365 million to the value of a number of its
industrial assets.
"We expect challenging conditions to persist in commodities
markets through 2017, with pressure increasing on producers and
other players with large asset footprints," said Mr. Salmon.
Trafigura, owned by around 600 of its staff, paid out $719
million to shareholders in 2016 via a share buyback its accounts
showed. This was down slightly from $776 million the previous
year.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
December 07, 2016 08:05 ET (13:05 GMT)
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