Resilience and reliability in turbulent markets
The past year saw our people work hard to solve the disruptions created by unprecedented market volatility and the big structural shifts that are shaping our industry.
Europe’s energy crisis and the war in Ukraine underscored the fragility of global supply chains and why security of supply is vital in a world of increasing geopolitical uncertainty.
The impact of climate change and the importance of decarbonisation was again evident with extreme events placing further strain on the production and movement of key raw materials.
We also responded to new rules and regulations that came into force across multiple jurisdictions following Russia’s invasion of Ukraine.
Trafigura unconditionally condemned the war and the ensuing humanitarian crisis, and moved quickly to terminate long-term contracts with Russian state-owned entities ahead of sanctions taking effect in May. The company also exited its sole investment in Russia, namely a 10 percent minority stake in Vostok Oil, in a transaction that completed in July.
Against a complex and fast-changing backdrop, we had to deliver exceptional levels of service to our customers, who were also forced to adapt to changing trade flows, the impact of rising raw material prices and broader inflationary pressures.
This has shown that what we do – connecting vital resources to help power and build the world – has not only become more complex but also more critical and in demand than ever before.
I am pleased to say that we were able to successfully tackle these challenges and deliver another strong set of results, drawing on the global network, experience and capabilities we have worked steadily to build up over the past three decades.
Our performance allowed us to further strengthen our balance sheet. Group equity has almost doubled over the past two years and now stands at USD15 billion. We continue to have credit lines with around 140 banks globally.
This is a source of competitive advantage as producers and customers look to do business with strong and reliable partners that have access to readily available liquidity.
It is only by having global reach backed up by powerful analysis that we were also able to understand the interplay between different regions and commodities, and use our logistics network to provide valuable services to our customers.
To do this effectively in the current environment requires access to capital, excellent risk management capabilities and a dynamic organisation that quickly adapts to changing circumstances.
In particular, the ability to hedge commodity price risk in futures markets has become significantly more difficult given the withdrawal of market participants and resultant lack of depth in derivative markets. It is also much more cash-intensive due to the vastly increased margin requirements of clearing banks and exchanges. While larger, well-funded companies such as Trafigura are able to withstand these pressures, it is vital that measures are in place to ensure an orderly market even at times of high volatility, so that the real world movement of goods is not impacted.
At a divisional level, our Oil and Petroleum Products teams performed exceptionally well, adapting quickly to changing trade flows and identifying supply bottlenecks where our operations could add value in markets including crude oil, distillates and in particular in liquefied natural gas (LNG), where we navigated policy, price volatility, market liquidity and increasingly complex logistics to deliver a larger number of cargoes to Europe to help offset the decline in Russian gas flows.
The Metals and Minerals and Bulk commodities teams also delivered a robust performance, although strict COVID-19 lockdowns in China curbed activity in the metals and minerals sector. However, the supply and demand fundamentals remain strong in many of the metals crucial to the energy transition. Low stocks and a lack of investment in new supply characterise many of the raw materials needed to build renewable energy or the batteries that power electric vehicles.
Our power trading business continued to grow, expanding in Europe and the US and we made further progress in extending our footprint in renewable energy.
But just as our customers were challenged by difficult market conditions and rising costs, so were some of the Group’s operational assets.
Nyrstar recorded a loss due to operational issues in Australia and soaring power prices which forced the company to curtail production at its European smelters.
Regrettably, our safety performance was negatively impacted by two fatalities at our mining operations. This is unacceptable and we will continue to focus on improving the safety of workplaces across the Group. Our lost time injury rate fell over the year due to enhanced health and safety awareness programmes and training at all levels across the Group.
In its first full year following consolidation, Puma Energy’s management team disposed of a significant part of its infrastructure and storage assets, as part of a wider plan to refocus the business on downstream operations and reduce debt. The business also benefited from closer integration with Trafigura’s trading teams.
We made good progress on our commitments to reduce greenhouse gas emissions from our operations by 30 percent compared to a 2020 baseline, and our teams have developed longer-term targets that will be announced in our 2022 Sustainability Report, to be published in January.
While the security of supply has been the dominant theme in energy markets over the past year, the energy transition remains a key focus for Trafigura.
Policies such as the Inflation Reduction Act and an ambitious plan to ‘repower’ the EU with a focus on renewable energy and clean fuels such as green hydrogen, show the determination of policymakers to hit the goals of the Paris Agreement on climate change.
To that end, we are looking to help car companies and battery manufacturers to develop their supply chains to support a ramp up in electric vehicle production and adapt to the changing geopolitical environment. During the year, we announced deals to help support the development of lithium and cobalt refineries in the UK and the US respectively.
On carbon emissions, we joined forces with US data company Palantir to build and launch the Agora platform, a GHG emissions tracking and reporting tool. This will initially focus on metals and minerals but will be rolled out to other commodities, helping companies understand, manage and share their supply chain emissions. Alongside this initiative, we continued to invest in building our capabilities and investments in carbon markets, to provide customers with a range of solutions to offset emissions. We are proud of our involvement in Delta Blue Carbon, the largest mangrove restoration project in the world where we are the anchor buyer of its carbon credits.
Nala Renewables, a 50:50 joint venture between Trafigura and fund management group IFM Investors pressed ahead with investments in solar power, onshore wind and battery storage to progress towards its 4GW renewable energy target. We have also made a string of early stage investments in companies involved in new energy technologies and continue to see hydrogen-derived fuels as one of the key commodities of the future.
Looking ahead, we were delighted to be part of a consortium awarded the concession to refurbish and operate a near 1,300 km railway running from the Lobito port on the Atlantic coast of Angola to the border with the Democratic Republic of Congo. The Lobito Atlantic railway line will offer a western route to market for crucial energy transition metals that is safer and less congested or prone to delay than existing eastern and southern routes. Shifting freight from truck to rail will also significantly reduce greenhouse gas emissions. The project is expected to require a total investment of USD450 million over a 30-year concession agreement, including a USD170 million investment in new rolling stock.
We are also working towards a final investment decision on a project to build a one gigawatt renewable hydrogen production plant in Denmark, to provide zero-carbon fuel for trucks and other heavy transport vehicles.
From a personal perspective, I visited many of our operations over the past year, from Montevideo to Singapore and saw first-hand the hard work and dedication of our employees. It was especially exciting to see so many younger people developing their skills and progressing through the organisation, including through our graduate and apprenticeship programmes.
I would also like to thank our customers and suppliers for their ongoing support and our financial stakeholders for enabling our continued growth.
Whilst the new financial year has started well, we need to remain focused and vigilant in a period that is likely to be at least as challenging as 2022, with further market turbulence as the war in Ukraine continues and central banks lift interest rates to try and quell inflation. Trafigura is well positioned to continue to manage the challenges and supply the vital resources our customers need in the year ahead.
Jeremy Weir
Executive Chairman and Chief Executive Officer
