Commodity profits hit record in 2022, say trading house finance chiefs

The finance heads of the world’s largest commodity trading houses said 2022 was a record year for profits, setting a high-water mark for the industry that is unlikely to be repeated in 2023.

Trafigura, Vitol, Gunvor, Mercuria and CCI told the FT Commodities Global Summit profitability would probably be lower this year as commodity markets have returned closer to normal levels of volatility.

The biggest commodity traders reaped bumper profits in 2022 driven by extreme volatility in energy markets, including a tenfold increase in European gas prices after Russia cut supplies to Europe following the Ukraine invasion.

“The magnitude of that is something that I don’t think any energy market has seen,” said Jeff Webster, group chief financial officer at Swiss-based Gunvor.

Jeff Dellapina, chief financial officer of Vitol — the world’s largest independent energy trader — said that this year would likely see “volatility compression” in commodity markets.

Vitol disclosed this week that its turnover nearly doubled in 2022 to $505bn, up from $279bn the previous year.

Vitol has not disclosed its 2022 profit, but several market participants believe its net income more than doubled from already record levels in 2021 to rise above $10bn last year, though its accounts are still being finalised. The company declined to comment.

The larger trading houses benefited from their access to capital last year, allowing them to keep trading even in extremely volatile markets when capital requirements increased.

“[Last year] was an opportunity to take advantage of decent margins. I think that is all changing a bit now,” Dellapina said. “Last year was probably a cyclical high.”

Webster agreed, saying “that was probably a peak last year in terms of extremities of volatility and then likely for profitability as well”.

Richard Dolcetti, who runs finances at US-based CCI, said: “At times when there’s volatility in the market and there’s extreme supply and demand imbalances, it’s our role to step in.” When you can successfully do that, “you’re going to make money”, he added.

While some of the volatility in commodity markets has cooled, Christophe Salmon, chief financial officer at Trafigura, said he expected a return to more wild trading patterns in the years ahead.

“I believe that volatility in commodity markets is here to stay,” he said. “Not only are we talking about Russia, but also China. I’m talking about the energy transition, which intrinsically will trigger more volatility in a number of markets.”

Guillaume Vermersch, group chief financial officer at Mercuria, added that “intrinsic volatility remains” and “the fundamental problems are not solved”.

Most of the private trading houses keep their financial results close to their chest, but the few numbers disclosed so far are all record-breaking.

Trafigura, the only large private trading house to publish its results, made a record quarterly profit of $3.5bn in the quarter ended in December, on top of $7.1bn net profit in the financial year ending in October, an annual record.

Mercuria, which is based in Switzerland and registered in Cyprus, reported net income of $3bn in the 2022 year, up from $1.25bn the previous year, on turnover of $174bn.

At publicly listed Glencore, the earnings before interest and tax in its trading division rose to $6.4bn last year, up 73 per cent from the year before.