Commodity Traders Rake in Billions in Second Blockbuster Year

(Bloomberg) -- The world’s largest commodity traders raked in blockbuster profits for a second consecutive year in 2023, as the aftershocks of Russia’s invasion of Ukraine continued to create opportunities for physical merchants even as price volatility ebbed.

Vitol Group made a staggering $13 billion in net profit last year, while rival Mercuria Energy Group Ltd. banked about $2.7 billion, according to people familiar with the matter. In both cases, the profits were down about 10% to 15% on the previous year, but more than double the next-best year for either company.

The figures extend what has been the most profitable period in the history of the commodity trading industry. The four leading privately-owned energy traders — Vitol, Trafigura Group, Mercuria and Gunvor Group — have made combined net profits of more than $50 billion in the past two years, according to Bloomberg News calculations. By comparison, in 2018-2019 their combined earnings were just $6.8 billion.

The profits made by the top physical commodity traders in the past two years have been “really astronomical,” Sebastian Barrack, head of commodities at Citadel, the leading hedge fund in the sector, said at the FT Commodities Global Summit in Lausanne, Switzerland, on Monday. 

The blowout profits come at a time of heightened scrutiny from governments, after the fallout from the war in Ukraine focused attention on the industry’s role in ensuring energy security. The sector has been further thrust into the spotlight by a series of investigations into corruption that have exposed a widespread culture of wrongdoing across the biggest trading houses.

The profits are being shared among a small group of traders and executives, several of whom have been minted as billionaires and multi-billionaires thanks to the bonanza. Vitol is owned by about 450 of its senior executives, Trafigura has some 1,200 trader-shareholders, and more than half of Gunvor and Mercuria’s shares are effectively owned by just three men.

The numbers show how the companies responsible for buying, selling and transporting natural resources around the world are still making massively elevated profit margins. Sanctions on Russian exports continue to reroute vast amounts of the world’s energy trade, creating new dislocations and trading opportunities. Meanwhile difficulties shipping through the Panama Canal and the Red Sea have also made energy, grains and metals voyages more expensive.

“You’ve had phenomenal performance from the trading houses and it means everyone is now sitting on a lot of cash,” said Lyle Crawford, a project director for commodities at Boston Consulting Group.

Traders are already starting to spend these huge cash piles — Vitol has been buying stakes in oil refineries, Gunvor agreed to buy a majority share of a Spanish gas power plant, while Trafigura bought out a biofuels and fuel distribution business.

They’re also on a hiring spree — adding gas, power, freight and metals traders — to build their presence in markets beyond their historic cash cow of oil. The moment has also been a catalyst for succession plans to be put in place and a transition of senior executives across the industry.

It’s not just privately-owned independent physical traders like Vitol and Mercuria that have benefited from windfall profits, with energy majors like Shell Plc and TotalEnergies SE, miner Glencore Plc and hedge funds like Citadel also notching up major gains.

©2024 Bloomberg L.P.