World’s biggest energy traders are returning to metals markets

The shift comes as forecasters turn increasingly bullish on copper, aluminum and other metals, where long-anticipated production shortfalls are starting to take shape. Many commodities houses also see strong links between metals usage and power markets — another growth area for traders.

The energy giants are entering a sector that’s proven difficult to trade in the past, and one that’s largely dominated by two players: Glencore Plc and Trafigura Group. Their arrival could challenge smaller-scale metals traders, which have struggled to turn a profit in recent years as soaring energy prices and supply chain disruptions crimped demand from manufacturers.

“For the oil traders, there’s a whole energy transition story, but they’ve also got the cash to take significant positions,” said Kristofer Tremaine, chief executive officer of Kimura Capital, a lender to the commodities sector. “A lot of metal traders should be worried – they’re going to lose a lot of market share.”

Big plans

The early signs are that the new players are betting on bulk, with bigger volumes a good fit for the large-scale transportation networks of firms that move millions of barrels of oil per day.

As well as derivatives trader Woody Zhang, Gunvor recently brought in Paolo Cabrejos, formerly of Traxys, and Michael Gerard, formerly of IXM, to build out a concentrates trading business, according to people familiar with the matter. That adds to a group of traders largely focused on aluminum that it hired late last year.

“As a company, what we’re really doing is continuing our deep involvement in energy markets,” said Ivan Petev, global head of base metals at Gunvor. “The energy transition goes through metals — you cannot do it without metals.”

Vitol is also initially focusing on aluminum, with Benjamin Seaford and William Gayner set to join from Mercuria. The world’s biggest independent oil trader has also hired an iron ore veteran to trade that paper market.

“The bigger, commoditized metal markets are probably more suited to us because most of what we do is large scale commodity movements,” Vitol CEO Russell Hardy said in an interview on the sidelines of a conference earlier this month. “So lithium, cobalt or other battery metals hasn’t really crossed our thought process.”

Mercuria has held talks about hiring Kostas Bintas — Trafigura’s former co-head of metals and notorious copper bull — to build out a large-scale base metals trading business.

The ability of the energy traders to deploy vast amounts of capital could potentially have a big impact on metals markets. Vitol, Trafigura, Mercuria and Gunvor made combined profits of more than $50 billion over the past two years and are already investing in physical assets.

In metals, it’s also common for traders to enter pre-payment deals with mining and smelting companies for future production.

Mercuria, which already has a mine seeding business, recently held talks with Vedanta Resources over funding the restart of its Konkola Copper Mines in Zambia, according to people familiar with the matter. Vedanta said it was in talks with “partners” for “short term financing,” while declining to name the companies it was talking with. Mercuria declined to comment.

Past mistakes

Still, Mercuria, Vitol and Gunvor are all returning to metals after previous mishaps that contributed to them winding down their trading books.

Vitol had been an active player, particularly in tolling metal in the former Soviet Union during the 1990s, and it held investments in a zinc plant and aluminum products manufacturer in Russia.

But its Euromin unit reported “significant losses” in 1995, company records show, on the back of “political instability” and the receipt of a “significant tonnage of substandard aluminum sheet and poor handling of inventory.” Still, after a restructuring the company continued trade alumina until 2019.

Mercuria had a series of high profile difficulties in its metals book, including falling victim in 2014 to an infamous fraud involving multiple pledging of warehouse receipts at China’s Qingdao port. Later it sued a Turkish supplier for delivering painted rocks instead of $36 million of copper, while a bullish bet on zinc concentrates was countered by a flood of material from new mines.

Gunvor closed a substantial base metals book — mainly focused on copper — in 2016 after a loss linked to the insolvency of Prateek Gupta’s Ushdev International Ltd. An internal memo obtained by Bloomberg at the time cited “risk factors such as pricing and counterparty behavior” behind the decision to shutter the metals trading desk.

This year, metals markets have provided trading opportunities for many in the sector: regional premiums for aluminum are rising in Europe, while copper concentrate treatment charges have nosedived to record lows. New sanctions on Russian metals have also spurred volatility, as traders look to game new London Metal Exchange warehousing rules.

“We see an exciting decade going forward in these markets,” Vitol’s Hardy said at the conference.

(By Archie Hunter, Jack Farchy and Mark Burton)