Mercuria earnings rise after swallowing JPMorgan arm

Mercuria posted an increase in earnings last year as the fast-growing commodities trader digested the acquisition of JPMorgan's physical oil and metals business.

The privately held company, which is based in Switzerland but registered in Cyprus, does not disclose results but sources close to the company said it had recorded earnings before tax, depreciation and amortisation of $553m in the year to March, up 3 per cent from $537m in 2013.

Gross profits were $731m, down from $747m a year earlier. Revenues stood at $106bn against $87bn in 2013, a figure that was revised because of the adoption of new international accounting standards by Cyprus. Revenues in 2013 had previously been stated at $112bn.

Physical trading volumes were a record 274m metric tons, up from 194.6m. Mercuria did not pay a dividend.

People familiar with the results said Mercuria would have posted record pre-tax profits if the company had not set aside a significant amount of cash to cover a dispute over financing deals with Citigroup, the US bank. Mercuria declined to comment.

Banks and trading houses around the world have been scrambling to limit their exposure to financing agreements at two metals warehouses in China - Qingdao and Penglai - after local authorities began to investigate claims of a fraud a year ago.

The result has been a flurry of lawsuits, including the UK High Court case between Mercuria and Citi, over exposure to a $270m sale and repurchase agreement linked to copper and other metals stored at the warehouses. A judgment is expected soon.

Launched just 11 years ago after former Goldman Sachs and Cargill traders Marco Dunand and Daniel Jaeggi bought a stake in a company focused largely on supplying Russian crude to Polish refiners, Mercuria quickly expanded in Europe and Asia.

Last year's $800m deal for JPMorgan's physical oil and metals division has expanded its presence in North America and lifted its turnover into a similar league as private trading houses Vitol and Trafigura, which dominate independent oil and metals trading alongside publicly listed Glencore.

Speaking at the FT Commodities Global Summit in Lausanne, Switzerland last week, Mr Dunand said Mercuria had largely completed the integration of JPMorgan's assets and would resume a search for a major investor - possibly a private equity firm with exposure to oil and mining - to assist the next phase of its expansion.

After several years of flat markets, falling profits and declining margins, oil traders are enjoying the most favourable trading conditions they have seen since the aftermath of the global financial crisis.

The 50 per cent collapse in oil prices since mid-2014 has enhanced opportunities to make profits from trading crude and by storing it and selling it at better future prices.

When future oil prices are higher than spot prices, the market is said to be in contango, while the opposite is known as backwardation. A contango market was largely responsible for the record profits oil traders booked in 2008-09.

Vitol, the world's biggest independent oil trader, enjoyed a sharp recovery in profits in 2014, aided by more favourable market conditions towards the end of the year. In the 12 months to December, Vitol reported a net profit after tax of $1.35bn, the most since 2011 when net income reached $1.7bn.

On Tuesday, BP said results from its trading arm, one of the biggest in the industry, were around $300m-$350m stronger in the three months to March than in an average quarter. The company also said it had stored more than $1.25bn of oil in the past quarter to try and benefit from the contango in crude oil.

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