Trafigura Interim Results 2022
Another strong performance in challenging times
The six-month period ending 31 March 2022 was an extremely challenging time in global markets, featuring heightened volatility, continued supply chain disruptions and, from 24 February 2022, war in Ukraine. Trafigura’s global and diversified business footprint, market knowledge and customer relationships, logistical skills and robust balance sheet were all significantly tested. These qualities are also required more than ever by our customers during periods of seismic change in commodity markets, and the last few months have been no exception. I am pleased to report that Trafigura Group successfully navigated these challenges to achieve another strong commercial performance and a record profit for the period.
Russia’s invasion of Ukraine has resulted first and foremost in a humanitarian crisis, but also in substantial dislocations in energy markets and global supply chains, the full impact of which is only beginning to become clear. Trafigura unconditionally condemns the war in Ukraine and we responded rapidly and effectively to the requirements of Western sanctions, engaging openly and regularly with governments and our customers throughout this turbulent and fast‑changing period.
We ceased all trading of crude oil with sanctioned Russian organisations in advance of the European Union and Swiss sanctions taking effect on 15 May 2022, and we will continue to comply in full with all applicable subsequent sanctions packages. We also immediately froze our investments in Russia and announced a review of our ten percent non‑operational, passive shareholding in Vostok Oil, with the intention of exiting.
At the same time, the derivatives markets – on which commodity trading firms, among others, depend to manage index price risk exposures – experienced their own disruptions. Extreme volatility, in particular after the outbreak of war in Ukraine, brought elevated margin calls and tighter position limits that made hedging activity more expensive and in some cases constrained access to commodities futures markets.
Despite these challenging conditions for our customers and for our business in the final weeks of the reporting period, both principal operating segments, Energy1 and Metals and Minerals, achieved excellent profitability and handled record volumes.
The Group reported a robust financial position for the period amidst challenging market conditions and substantially increased liquidity requirements as commodity prices saw unprecedented volatility, ending the period with a strengthened balance sheet and cash position. Group equity increased to USD12.7 billion, an increase of 20 percent compared to the end of our 2021 financial year.
Our industrial assets are also now on a much sounder footing than in recent years. The Nyrstar metal refining business continued its turnaround plan with improved operational performance, although it is being severely challenged by the strong headwind of high energy prices in Europe.
Puma Energy, now fully consolidated within the Trafigura Group after the buyout of its Angolan shareholders, is being streamlined under new management, including agreeing the sale of its infrastructure business during the period.
We continued to grow our power, renewables and carbon trading operations, and to invest in projects to support the energy transition. Nala Renewables, our 50/50 joint venture with IFM Investors, acquired a large portfolio of solar projects in Chile and a further four projects to construct battery energy storage systems in the United States. Our growing carbon team completed a landmark transaction, investing in the world's largest mangrove restoration project in Pakistan for which Trafigura is the anchor offtaker, to deliver high quality carbon removal credits.
Through our joint venture with H2 Energy, we are progressing plans to build a 1GW green hydrogen electrolyser in Denmark to fuel trucks and other heavy land-based transport. In addition, we are developing up to 250 green hydrogen retail refuelling stations in Austria, Denmark and Germany together with Phillips 66, the owner of JET branded stations. In Australia, we are progressing a study to develop a commercial scale green hydrogen manufacturing facility at Nyrstar’s Port Pirie site. And in Norway, Trafigura is part of a consortium together with Hy2gen and Copenhagen Infrastructure Partners to produce green ammonia for the shipping sector in a project that is expected to be operational in 2027.
Looking ahead, we see no let-up in the challenging market conditions. Global supply chains remain disrupted and the geopolitical situation will continue to be turbulent. Commodity inventories are at perilously low levels across metals and energy markets as demand continues to outstrip supply, following a sustained period of structural under‑investment in natural resources production over several years. In terms of demand, we are not yet seeing a slowdown in physical demand for oil and metals – all of which points to a tight market for commodities and heightened prices for some time to come. Significant investment will be required to produce, process and transport energy, minerals and metals to meet future needs and support the ongoing energy transition.
Whilst we expect another strong performance from the business in the remainder of the financial year, there are a number of growing headwinds. These include ongoing geopolitical tensions and the continued challenges of dysfunctional commodities futures markets. The very significant impact of inflation and constrained availability of energy, food and natural resources will also take their toll on global economies – with the most vulnerable unfortunately likely to bear the greatest impact.
Trafigura proved yet again in the first half of its 2022 financial year that its business and global platform are resilient and agile to adapt rapidly to difficult market conditions, and I am confident that this will continue to be the case for the full year.
Executive Chairman and Chief Executive Officer
1The Energy segment comprises oil, petroleum products, natural gas, Puma Energy, power, carbon and renewables.