At Trafigura we see a world of opportunities for growth, driven by offering clients solutions that combine our trading and logistical expertise with investments in infrastructure where it is needed and with deep financial strength.
This unique mix enables us to offer our producing and consuming customers improved efficiency in product marketing and supply, and thereby the potential for enhanced investment returns. It also enables Trafigura to strengthen its margins despite a subdued market environment characterised by low volatility.
This interim report shows the company continuing to perform well and investing with confidence for future growth. Three factors underpin this long-term confidence in our business.
First is the market outlook, where the bigger picture is that demand for the energy products and industrial raw materials we handle is set to continue growing strongly for the foreseeable future.
China’s GDP growth may have moderated to an expected 7.5 percent this year from the double-digit rates of recent years, but this still translates into a need for ever-higher volumes of raw materials and energy . Growth in some emerging markets may have slowed substantially, but others are picking up momentum, notably in Africa where urbanisation and industrialisation are creating a growing middle class and new resource needs. In the oil market, major changes such as the rise of US shale oil and gas production continue to create new patterns of supply and demand and the need for companies able to respond dynamically in their trading and investment.
It is hard to see these fundamental global trends going into reverse. Softening growth combined with surpluses in some markets are more likely to find expression in lower prices and reduced market volatility than in curtailed consumption. That means the prospect of continuing growth for the Trafigura Group.
A second reason for confidence in our business is its global scale, financial strength and independence from producing interests. Together these attributes mean we can afford to invest in the world-class systems and people that enable us to deliver superior service to our producing and consuming customers, including full logistical support and financing. We are now seeing the benefit of many years of investment in creating resilient and efficient global operations.
The third factor is the nature of our business model combining physical trading with investment in infrastructure alongside our clients to enable trade flows. We specialise in developing infrastructure where it’s needed to bring commodities to market – from new ports and storage facilities to multimodal transport systems – for the benefit of both producing and consuming interests.
At Corpus Christi, Texas, for example, our significant investment in a port and storage terminal for oil and petroleum products is enabling us to provide a crucial service to the oil producers seeing rapidly increasing output from the Eagle Ford shale, storing oil and petroleum products, transforming crude into products, and supplying both the domestic and export markets.
On the bulk side of our business, in the first half of this financial year our Impala subsidiary completed the acquisition, together with our partners Mubadala, of Porto Sudeste, a major new iron ore export facility in Brazil with potential annual capacity of 100 million tonnes. When this port starts operating later in 2014, it will provide a significant boost to the iron ore mining industry in Minas Gerais state and a significant new platform for growth in the iron ore market . At the same time, a number of other important investment projects progressed towards completion. Such projects will further enhance Trafigura’s client offering and constitute the foundations for the next phase of our expansion.
The first half of the financial year also brought important management change with my decision to become Executive Chairman of Trafigura, the appointment of Jeremy Weir as CEO and the nomination of Mariano Marcondes Ferraz to the Management Board. The new management structure is well suited to the current complexity and size of the company and will also help us manage with confidence our long-term growth.
Statement from the CEO, Jeremy Weir
Short-term performance and a long-term perspective are equally important to sustainable success in commodities trading. Both elements can be observed in Trafigura’s financial results for the first half of the 2014 fiscal year.
In the six-month period ending 31st March, the company continued on its well-established trajectory of profitable growth, featuring strong volumes, satisfactory margins and net profit 24 percent above the figure for the 2013 first half.
In oil and petroleum products trading volumes rose 7 percent year on year, maintaining the upward trend observed in the full-year figures for 2013: the division is now regularly trading more than 2.5 million barrels per day. In Non-Ferrous and Bulk, volumes were up 67 percent, due to an increase in bulk business including an especially pronounced rise in coal.
Our gross margin was 1.5 percent, which is in line with the previous year after factoring in the deconsolidation of Puma Energy, and therefore remains healthy. We expect solid margins and volume growth to be sustained into the second half of this year.
These figures also tell a story of long-term investment. We have been investing in the development of our oil and non-ferrous business since the birth of the company 21 years ago. More recently we identified coal and iron ore as new areas for investment in growth. The figures show those more recent investments starting to pay off. They also illustrate the vital role played by infrastructure in the strategic development of our core trading activity.
Impala’s Porto Sudeste iron ore project in Brazil, jointly controlled with Mubadala, is a case in point. The large and growing export capacity it will create is a new window on the world for the Brazilian mining industry, especially for smaller miners. This new supply will help engender a more competitive global iron ore market and consolidate Trafigura’s position as a major player in that market.
But Porto Sudeste is only one of many infrastructure investments by the Trafigura Group that are reaching fruition. At Burnside, Louisiana, Impala has invested more than USD250 million in a state-of-the-art coal export terminal on the Mississippi River which is now ramping up operations to channel US coal to world markets.
At Callao, the main port in Peru, Impala has just completed a USD174 million expansion project to boost capacity to blend and export the growing flows of non-ferrous concentrates from Peru’s central mining belt.
In Colombia, work is now well advanced on Impala’s USD 850 million investment in a multimodal transport system linking the country’s main ports with its economic heartland by road, rail and a major barging operation along the Magdalena River to a purpose-built inland port at Barrancabermeja. When this starts full commercial operations over the next year, it will have a transformative effect on Colombia’s international trade and competitiveness.
In Spain, Trafigura Mining Group is nearing completion of a EUR300 million, two-year expansion plan at its flagship MATSA mine, including a new treatment plant and a doubling of production.
Elsewhere, our Puma Energy affiliate, in which we retain a 49 percent stake, continues to invest in acquiring and building numerous midstream and downstream opportunities across Asia-Pacific and Africa.
In all of these cases, the investment in infrastructure assets adds value to our core trading business and improves the service we can offer our clients. It is also the clearest possible demonstration of our commitment to running a business that is successful and resilient through the business cycle and sustainable for the long term.