Commodity trading chiefs upbeat at FT Lausanne conference

After a period of weakness in commodity markets, some of the world's biggest traders gathered on the shores of Lake Geneva last week to discuss the outlook for the industry for the fourth FT Commodities Global Summit.

Commodities prices may be at the lowest levels snce 2009, but the mood among trading houses was upbeat. The rise in price volatility and the favourable structure between contracts for immediate delivery and future delivery has supported profitability for the sector.

Here are the key themes that emerged:

Crude oil prices

The worst of the oil rout appears to be over, according to the traders in Lausanne. Ian Taylor, the head of Vitol, the world's largest independent oil trader, said the market had seen "the final lows" even if there was the chance for prices to pull back slightly after rallying above $65 a barrel this week.

"Gasoline is coming back with a vengeance," said Mr Taylor.

Torbjorn Tornqvist, Gunvor's chief executive, also told a panel that the price had hit a trough. "The oil price has overreacted to the downside," he said.

Brent may have rebounded by 45 per cent since January, there were some voices urging caution. US crude inventories were at their highest in at least 80 years, even if output is expected to slow soon.

Those betting on future supply shortages have "come in way too early," pointed out Michael Coleman, co-founder of RCMA Asset Management.

US as a swing oil producer

Can the US replace Opec as the world's swing producer? The question was dismissed by Tony Hayward, former BP chief.

"The idea of the US as a swing producer that can just bounce up and down on a sixth-month basis is just erroneous," he said.

Now the head of Genel Energy and chairman of commodity trader Glencore, Mr Hayward said predictions that US shale output could quickly scale up or down to balance supply and demand were wildly overstated. The number of active US rigs has more than halved since October, with up to 300 workers leaving the industry for every drilling rig idled in the US.

"The supply chain in the US is being decimated," he added.

Commodity trading regulation

Concerns were raised about regulation surrounding commodity trading discussed by the US and European authorities.

The trading houses are particularly concerned about rules around capital requirements, position limits and limited hedging exemptions. Clare Hatcher of Clyde & Co said capital requirements were a major concern for the industry. "Commodities have been exempt since 2006 . . . whether that will continue is a big issue."

Paul Reed, the chief executive of BP's trading arm, also argued that regulation could cause participants to quit Europe to regions such as Asia.

Chinese food demand

China's growth slow down was affecting demand in food, according to David MacLennan, chief executive of Cargill. The leading agricultural trader's chicken operations in the country and starches and sweeteners business was seeing the impact, he said.

"We're not worried but we take note of the recent slowdown," he said.

Meanwhile, Ning Gaoning, Cofco chairman, played down concerns that towering domestic stocks of corn - estimated at 95m tonnes by the Food and Agriculture Organization - would soften China's demand for grain imports.

Mr Ning said: "I think this is temporary. The short-term inventory will not change the long-term shortage or lack of supply."

He noted that high prices for corn had spurred imports of other feed grains, such as sorghum and distillers' dried grains, a byproduct of corn ethanol refining. In southern China - away from the corn-growing regions in the north - "There will be more imports from other countries," he said, estimating them at 2m-5m tonnes a year to start.

Financial transparency

The finance directors of the world's biggest oil traders revealed they were facing more questions from banks, insurers and investors about how they operate their business and account for long-term-supply agreements following scrutiny of accounting policies at Noble Group.

Noble, Asia's biggest commodity trader by sales, has been involved in a bruising public battle with several research groups. They have accused the company of using valuation estimates - permitted under accounting rules that flatter the company results.

Jacques Erni, chief financial officer of Gunvor, said the company had received questions from its lenders but saw it as an opportunity to explain their accounting practices and clarify the gaps in international accounting standards that "give you some flexibility on how you book forward contracts".

Mercuria's Guillaume Vermesch said the firm was going through very detailed sessions with its lenders on its accounting methods. "At the end of the day, we are effectively leasing their balance sheets, so they wish to hold us to their standards," he said.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation