Commodity traders had their second-best year on record in 2023, with profits of around $100bn and large cash accumulations.
Although all results are not yet public, profits at the largest independent trading houses are expected to have fallen by 33% from the record level of $150bn in 2022. However, 2023 still marked a continuation of the positive trend in the industry that began in 2018, according to the consultancy Oliver Wyman. Industry cash reserves are estimated to be between $70bn and $120bn.
The consultancy’s latest report on commodity trading said: “2022 was a year dominated by idiosyncratic events, and record margins were not sustainable. But the structural factors that drive commodity trading profitability remain in place”.
Speaking to Bloomberg, Adam Perkins, consultant at Oliver Wyman and co-author of the report, said: “We saw pretty good margins overall and that is practically because things continue to be a little bit tight on the supply-demand side.”
Profits in the metals and mining sector fell the most from the highs of 2022 as the price of coal dropped by 50%.
The fall in power and gas sector gross margins was caused by milder-than-expected winter conditions and a build-up of liquefied natural gas stocks. Crude oil trading margins declined due to lower volatility in 2023.
Oliver Wyman suggests that traders can use the cash reserves they have built up to invest in assets, giving them more influence over their trades. According to Bloomberg, traders have already bought storage assets, oil refineries and power plants, and governments of countries such as Italy, Germany, the US and Saudi Arabia have granted them funding to secure supplies of essential commodities such as gas and copper.
This is part of the evolving nature of the trader’s role. According to the report, they are now more likely to work with governments to ensure energy security.
Perkins said “traditionally this position in energy security wouldn’t have been held by an independent trader”, but they are being “drawn into that role”.
