Trafigura boss doubts rally will return

Claude Dauphin says China’s growth will be ‘less materials intensive’

Claude Dauphin is one of the most reserved – and powerful – figures in the commodities trading industry.

The chief executive of Trafigura never speaks in public, but he does write a letter to lenders and bondholders – part of the company’s annual report – that offers a rare window into his thinking.

The letter, which is not released publicly but was seen by the Financial Times, contains a few nuggets about the outlook for commodities in 2013 and beyond. Trafigura is the world’s third largest independent oil trader, behind Vitol and Glencore, and the second largest in base metals, such as copper, after Glencore.

Mr Dauphin writes that the good old days of the past decade, when raw materials markets rallied in tandem, are all but over.

“A return to [the] buoyancy of the commodities markets between 2003 and 2007 is unlikely.” But he predicts that “the extreme pessimism witnessed in 2012 is expected to dissipate”.

Trafigura has forecast global economic growth of 3.5 per cent for the year, up from 3 per cent in 2012. The outlook is in line with that of the International Monetary Fund, which last week said the global economy will expand 3.5 per cent this year.

Mr Dauphin offers a mixed outlook for China, the main engine of commodities demand growth over the past decade. On the one hand, the country is moving towards a period of growth that would be “less materials intensive” than in the past. “This is likely to manifest itself in slower prolonged growth as opposed to an absolute decline in consumption,” he says. But “China’s growth trajectory [in 2013] is likely to exceed that of 2012”.

The chief of Trafigura is far less optimistic about developed countries. “It is evident that in light of fiscal austerity and household and corporate deleveraging, growth in the US and the eurozone will continue, at best, to be slow.”

Nonetheless, the slow economic growth of industrialised countries will be compensated by emerging nations. “Despite uncertainty within mature markets, forward looking indicators suggest that growth in Asia, Latin America and Africa will underpin commodities demand for some time,” he says.

“In all cases, rapid industrialisation and ongoing urbanisation remain the golden thread that binds development.”

Mr Dauphin founded Trafigura in 1993 with a group of other senior traders who left Marc Rich & Co, the trading house which, after a management buyout in 1993, transformed itself into the company that is Glencore today. Trafigura told bondholders in 2010 that Mr Dauphin owns “less than 20 per cent” of the trading house while “over 500 senior employees” control the rest.

Trafigura reported net income of $991.9m in the year to September, down 11 per cent from last year’s record $1.11bn. The results were boosted by the sales of mining assets, including shares of Anvil Mining and Tiger Resources.

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