Trafigura offers glimpse into inner workings

Privately held Trafigura Beheer B.V. surprised investors by offering a peek into its books.

As a private-company the commodities trader was under no obligation to release results, but the move mirrors the process followed previously at Glencore Xstrata (LSE: GLEN). Glencore began releasing financial results in the few years leading into its eventual initial public offering.

Now that Glencore is public, Trafigura has taken the reins as the most intriguing, as well as one of the most profitable, private commodity trading houses in the world. But if market watchers think that Trafigura will soon follow in Glencore’s steps, they might be disappointed.

“We intend to remain a private company owned by employees,” Trafigura’s CFO Pierre Lorinet said in a statement. “We continue to use capital in a disciplined manner, releasing value when the opportunity arises and recycling capital into new projects with a view to supporting our trading business and creating new revenue streams.”

It’s a model that appears to be working as demonstrated by the robustness of the company’s income statement. For the period ending on Sept. 30 Trafigura reported profits of US$2.18 billion, a 117% increase over last years results.

A good chunk of that net income came courtesy of a US$1.43 billion gain from reducing its holding Puma Energy, a midstream and downstream oil company. Trafigura says despite the profitable sale of some of its position in the company, it will remain the largest shareholder and will continue to work Puma.

Profit from operating activities was also impressive, amounting to US$2.65 billion compared to US$1.49 billion in 2012.

Much of that uptick can be attributed to increased trading volumes in oil and petroleum products, which was up 15%, which offset a decrease in trading volumes in non-ferrous and bulk commodities, which fell by 5.9% to 32.9 million tonnes.

Trafigura says it expects volumes in non-ferrous and bulk trading to pick back up next year as a result of off-take agreements and infrastructure investments made during 2013.

The company traces its history back to 1993 when it was set up by Claude Dauphin and Eric de Turckheim after the two split off from a group of companies managed by Glencore founder, the late Marc Rich.

Since then it has built itself into one of the world’s leading independent commodity traders, specializing in oil, minerals and metals markets.

Those trading activities include the supply and transport of oil and petroleum products and non-ferrous and bulk commodities. It supports that trading business with industrial and financial assets across the globe.

Connected to the release of the financial results was a statement from founder and Chairman Dauphin. Acknowledging that many in the financial industry are lamenting the end of the commodity super-cycle, Dauphin said Trafigura has a different view.

“We see the developments of the past year as an inevitable adjustment in a market that had become overheated,” he said. “We see supply surpluses as a short-term consequence of past over-investment. We see asset valuations as having declined from excessive levels to realistic ones – and in some cases to levels that look attractive to us as investors.”

He points out that the company’s business model is basically indifferent to price volatility in the underlying commodities as it hedges away almost all of its price risk.

“We can profitably deliver services regardless of the absolute level or direction of prices,” he said.