Glencore and Trafigura’s Metal Dominance to Be Challenged

on Oct 16, 2012

While both Glencore (LON:GLEN) and Trafigura have enjoyed a near duopoly as regards metals trading since the collapse of Enron in 2001, their dominant position may soon be effectively challenged by newcomers such as the Geneva-based oil trader Mercuria and the logistics company CWR, the Financial Times reported on 15 October 2012.

**New Entrants to the Metal Race**
The FT quotes executives at both Mercuria and CWT as saying that they were targeting the number three position in metals trading. “I would look for us to be on the top three speed dials of every bank in the market,” noted Ben Green, managing partner at Mercuria. CWT’s head of commodities trading Mark Lowe in turn commented that his company was aiming for a top three position in unrefined metal ores and refined metals. “We want to be a significant and diversified natural-resources trading company,” he said, as quoted by the FT.

**Trafigura Confident**
!m[Newcomers Mercuria And CWT Targeting The Number Three Spot](/uploads/story/581/thumbs/pic1_inline.png)Meanwhile, Simon Collins, one of Trafigura’s directors, told Reuters the company expected profit at its metals and concentrates unit to come under pressure in 2013 on account of slowing economic growth. Yet, Trafigura remained confident that it would be able to withstand the growing competition. “We have not really seen much impact on the business so far – if any,” noted Mr Collins, as quoted by Reuters.

Trafigura and Glencore have a combined market share of 41 percent of the refined metal volume and 65 percent of the unrefined concentrates which are traded internationally and are not tied up in long-term contracts between produces and consumers, according to FT data. In addition, Glencore is likely to additionally increase its market share by means of the proposed merger with miner Xstrata (LON:XTA).

**Mercuria, CWT Planning Investments**
Both Mercuria and CWT, however, are planning vertical investments in mines as well as infrastructure which will help them boost their respective market shares. Mercuria, which only recently started trading metals, has hired some 20 traders in London and Shanghai in 2012, and considers investing in assets such as warehouses. “As far as the appetite to get into assets is concerned – the answer is yes it’s there,” notes Daniel Jaeggi, co-founder of Mercuria, as quoted by the FT. CWT in turn has bought two small trading houses in the past 18 months and as noted by Mr Lowe, had a “shortlist” of assets it was looking at.

**Wave of Interest in Metals**
The FT reports that in addition to Mercuria and CWT, the Hong Kong-based Noble Group (SGX:N21), the US-based Freepoint Commodities as well as the Geneva-based Gunvor have also said that they saw opportunities in the market despite the slowdown in demand. Mark Hansen, head of metals at Noble, has indicated that the company, which is already a significant aluminium trader, aimed to triple its copper trading to 400,000-500,000 tonnes a year within the next two years.
The wave of interest in metals is likely to be among the main topics of discussion at the London Metal Exchange Week (LME Week), the annual gathering of the metals industry. Trading houses are also expanding in the metals sector with banks’ activities in commodity markets being increasingly restricted by tighter regulations. Recently, Timothy Lane, deputy governor of the Bank of Canada noted in a speech that trading houses were becoming “systematically important”, suggesting that they might also benefit from the tougher scrutiny applied to the world’s biggest banks.


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