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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