Monday, October 28, 2013

The Big Dogs of Physical Commodity Trading

Those of us in managed futures live in a world full of contracts, rules, regulations, and hardly a physical commodity in sight during trades. But there’s an underbelly to all of that activity called physical commodity trading that sometimes gets overlooked by those of us who merely trade the derivatives of all that oil, grains, and what not.
And the physical side of the commodities business is HUGE! We’re talking trillions of dollars huge, and likely among the biggest futures market participants as well. But these names are hardly the household names of other billion dollar businesses like UPS or IBM or the like. These firms largely remain out of the spotlight while they are shipping oil around the world and strip mining the rain forests.
Just who are they? Futures Magazine’s recent piece highlighted the Top 10 physical commodity traders (with an added angle of looking at the trouble they’ve gotten in before). The combined 2012 annual revenue of their Top 10 comes out to be $1.3 Trillion (yes that’s trillion with a capital T), with $60 Billion coming from the tenth ranked physical trader to a whopping $303 Billion stemming from the king of physical commodity trading.
Topping the list is Vitol Group, representing more than a third of the Top Ten’s revenue. They’re the world’s largest physical gas and oil trader. Last year, they sold 2.4 million barrels of Crude Oil. But that’s not all. They also trade sugar, metals, and grains, in large quantities. Just this month, Vitol delivered 144,000 metric tons of Raw Sugar.  Coming in at number two is Glencore International, with revenue of $236 Billion in 2012. The commodity trading giant went public back in May of 2011, with the company’s worth valued at $60 Billion dollars (which is more than Boeing and Ford Motors.) Foreign Policy called them “A Giant among Giants,” after they released private information leading up to their IPO:
The company controlled more than half the international tradable market in zinc and copper and about a third of the world’s seaborne coal; was one of the world’s largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption for customers ranging from state-owned energy companies in Brazil and India to American multinationals like ExxonMobil and Chevron.
Did they just say half of international tradable zinc and copper?
We are always amazed at the size of the giants of the managed futures industry, like Winton with $25 Billion in assets under management and what we would guess to be annual revenues of $500 to $700 million in a good performance year. But the physical trading firms make even the largest of large CTA’s look like small play things in comparison.
Let’s all hope they stay focused on making billions in their own world instead of coming into the managed futures world to compete… Although with 9 out of the 10 having had some sort of run in with the law, with most paying tens of millions in fines, maybe they would just as soon stay away from being more heavily regulated.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.