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October 15, 2012 2:00 pm
The dominance of Glencore and Trafigura in metals trading is being challenged for the first time in a decade, as new entrants race to become the third-largest dealer in copper, aluminium and zinc.
Executives at Mercuria, a privately owned oil trader based in Geneva, and CWT, a Singapore-listed logistics company, told the Financial Times they were targeting the number three spot in metals. They also revealed plans to acquire assets – such as stakes in mines, warehouses and smelters – to complement their assault into metals.
Glencore and Trafigura have enjoyed a near duopoly since the 2001 collapse of Enron, which controlled leading metals trader MG.
The wave of interest in metals trading will be a key topic of discussion at LME Week, the annual gathering of the metals industry in London this week.
The challenge from Mercuria and CWT – as well as others expanding in metals such as Hong Kong-based Noble Group, Geneva-based Gunvor and US-based Freepoint Commodities – is still in its early stages, but their executives said they saw a big opportunity in the market in spite of a demand slowdown due to weaker economic growth in China.
“We are aiming for a top three position in concentrates [unrefined metal ores] and refined metals,” said Mark Lowe, head of commodity trading at CWT. “We want to be a significant and diversified natural-resources trading company.” Ben Green, managing partner at Mercuria, added: “I would look for us to be on the top three speed dials of every bank in the market.”
Meanwhile Noble, already a significant aluminium trader, aims to triple its copper trading to 400,000-500,000 tonnes a year in the next two years, according to Mark Hansen, its head of metals.
Glencore and Trafigura dominate the metals market, with a combined market share of 41 per cent of the volume of refined metal and 65 per cent of the unrefined concentrates that are traded internationally and not tied up in long-term contracts between producers and consumers, according to data compiled by the Financial Times based on company reports. Glencore could further boost its market share through its merger with miner Xstrata.
Mercuria has hired about 20 traders in London and Shanghai this year, and has only recently begun to trade metals. CWT has spent about $100m in the past 18 months buying two small trading houses.
Mercuria and CWT are planning to invest in mines and infrastructure, encroaching on territory traditionally dominated by Glencore and Trafigura, along with investment banks such as Goldman Sachs and JPMorgan.
Daniel Jaeggi, co-founder of Mercuria, said: “As far as the appetite to get into assets is concerned – the answer is yes it’s there.” The trader is particularly interested in investing in midstream assets such as warehouses, he said. Mr Lowe added that CWT had “a shortlist” of assets it was looking at.
The new entrants hope to benefit from tighter credit markets, as some small miners and metal users find it almost impossible to finance themselves. “In today’s world, when credit is not so easy to come by, trading houses are de rigueur again,” said Mr Lowe. “They have a function to provide liquidity, and to provide funding which is perhaps not available from traditional sources.”
The wave of investment from trading houses comes as banks’ activities in commodity markets are increasingly being restricted by tighter regulation of proprietary trading and higher capital requirements. Senior metals traders at Goldman Sachs, Barclays, JPMorgan and Société Générale have been poached by trading houses this year.
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