The commodity industry made record gross profits of more than $115bn from trading activities last year, as volatile energy prices resulting from the war in Ukraine drove big swings in the market.
The biggest gainers were the independent trading houses — such as Trafigura, Vitol and Glencore — which had the balance sheets to stay in the market, according to a new study from Oliver Wyman.
“This year was a bit of a perfect storm across all the commodities, from a trading opportunity perspective,” said Ernst Frankl, partner at the consultancy and one of the authors of the report. “Volatility is the lifeblood of what traders need in order to trade.”
The European energy crisis sparked by the war in Ukraine, as well as the imposition of sanctions on certain Russian commodities, drove a big shift in global trade flows, leading to longer voyage times as well as price volatility across commodity classes.
Trading gross profits in the sector — including banks, hedge funds, independent traders and asset-backed traders such as energy majors — soared to $115bn, up 60 per cent from the previous year and nearly three times higher than pre-pandemic levels, according to the study.
Financial players such as hedge funds also enjoyed big gains, earning an estimated $12bn from trading activities in 2022 compared with less than $3bn the year before.
The earnings bonanza among energy companies last year has raised political concerns in Brussels and in Washington, where US President Joe Biden accused them of “war profiteering” and threatened to impose windfall taxes on oil companies.
While commodity traders have so far avoided similar proposals, their increasing profits are shining a spotlight on the powerful trading houses that move raw materials around the world.
London-listed Glencore reported net income of $17.3bn for 2022, more than triple the previous year. Singapore-headquartered Trafigura reported net income of $7bn for its fiscal year ending to the end of September — more than the previous four years’ profits combined.
However, the war was not the only factor contributing to the record numbers. Demand for commodities also rose in 2022, as economic activity rebounded after pandemic restrictions were eased and the global economy grew, said Adam Perkins, partner at Oliver Wyman.
“We are seeing under-investment and underproduction across commodities anyway,” Perkins said. “We would have probably seen volatility going up [in 2022] in any case.”
Among the different commodity classes, it was gas, power and carbon trading that gave the biggest boost — with industry earnings from the three segments surging 90 per cent in 2022 against the year before.
The report estimates the trading companies’ gross profit margin — which refers to the difference between the sale price and the purchase price, subtracting directly attributable costs such as transportation and financing. Gross margin is the primary metric traders use to assess their own performance.