Metal trader misery undercuts supercycle hype as losses pile up

It’s a disconnect that’s likely to dominate conversations as thousands of traders, financiers and investors descend on London for the annual LME Week gathering that kicks off Sunday: on the one hand, governments around the world are growing increasingly concerned about 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 supercycle that isn’t happening,” said Concord Resources chief executive officer Mark Hansen, whose company 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 $1 billion.

Operating profits at Trafigura’s metals unit were down 68% year-on-year in the 12 months to March as it recorded a loss of nearly $600 million 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 lackluster 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. And rising interest rates are dramatically 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 has 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.

Trickier year

Some of the industry’s 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% year-on-year to $1.5 billion in the 12 months through June, the weakest 12-month period since 2019.

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

Smaller firms have been harder hit. Bloomberg reported last month that several senior traders were leaving historic trading house Gerald Group, while earlier this year the company discovered it had been the victim of a suspected fraud in tin, people familiar with the matter said.

Transamine Trading SA, a specialist in trading metal ores known as concentrates, had a problem in Brazil earlier this year, according to people familiar with the company. Transamine is reorganizing its copper team, one of the people said.

“The trade is not easy — Australian copper concentrates cannot go to China, some companies are taking very aggressive positions and some big mining companies are now also trading. But it is not a bad year, we have had good business,” said Transamine director Jean-Pierre Adamian.

Concord, a mid-sized merchant specializing in aluminum which also owns an alumina plant in Louisiana, reported its first-ever loss in its 2022 results filed at Companies House in what it described as a “very challenging year,” while Ocean Partners, another concentrates trader, said net profits dropped 65%.

Still, many remain optimistic about the future, and some trading companies are seeking to expand in 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.”

(By Archie Hunter, Jack Farchy and Yvonne Yue Li, with assistance from Nishant Kumar, Mark Burton and Liz Yee Xing Ng)