Global commodities trader Trafigura reported record-high volumes of traded oil and metals to beat low volatility in a competitive and low-margin environment, the company said on Monday.
Trafigura, which rivals Glencore as the world’s second-largest oil trader, said traded crude and oil product volumes rose to more than 5.3 million barrels per day (bpd), up from 4.3 million (bpd) last year.
It also doubled its oil trade with India, a pattern set to rise following its purchase of Essar Oil’s Vadinar refinery with Russia’s Rosneft and UCP.
Despite the sharp rise in volumes, the Swiss-based trader reported a 9 percent drop in net profit to $887 million for the year ending Sept. 30
The company has been on a push to reduce debt since 2015 and reported a lower ratio of adjusted net debt to group equity at 1.35, down from 1.48 in 2016. However, the debt to EBITDA ratio rose to about 5.5 from 5.3 the previous year.
Earnings before interest, tax depreciation and amortisation (EBITDA) edged lower by three percent to $1.58 billion in 2017 while revenues rose by 39 percent to $136 billion from $98 billion last year.
Share buybacks also fell to $569 million from $719 million but exceeded the earlier mid-year guidance of $475 million. The firm is still paying departing founders, including the family of the late Claude Dauphin, but details on who was paid were not disclosed.
Metals and minerals trading posted the strongest gain in years, but returns on oil came under pressure due to low volatility and weaker margins.
“Market conditions for 2017 were characterized by robust economic growth that was very positive for the metals and minerals business where we saw increased prices,” Chief Executive Jeremy Weir said.
“Oil was slightly different, we had overcapacity, we had low volatility that adversely impacted market conditions, particularly because there was less arbitrage activity.”
Trafigura’s oil chief Jose Larocca said that the oil market was expected to tighten significantly in 2018 owing to continued demand growth and stocks draws following production cuts by OPEC and other producers. In 2019, the company said it sees a potential supply deficit owing to a lack of investment in exploration and production.
Capital expenditure was cut by 48 percent to around $391 million and is expected to stay at this reduced level for some years.
Competition between Trafigura and its rivals has intensified with particular focus on lucrative prepayments, mainly with state oil firms. Trafigura increased these to $3.74 billion up from $3.21 billion.
In 2016, deals with state firms accounted for about a third of traded volumes, up from a quarter the year before.
The trader’s rivals have also been boosting their volumes. Vitol remains the world’s largest independent oil trader at over 7 million bpd followed by Glencore at around 6 million bpd and then Trafigura.
On the metals and minerals side, volumes rose 19 percent to 69.9 million tonnes. Trafigura said that it had increased its volumes of nickel and cobalt and planned to raise those further to cater to demand for battery-making materials for electric vehicles.
A key deal for part of this future growth was a financing and offtake agreement with Finland’s Terraframe that operates a major nickel and zinc mine.