GENEVA (BLOOMBERG) - Trafigura Group racked up a 92 per cent gain in profit in the first half of its financial year, taking advantage of price swings in the petroleum market and a dominant position exporting crude from the US.
Joining peers in a strong performance, the third-biggest independent oil trader's net income jumped to US$426 million (S$581.3 million) in the six months to March 31, up from US$222 million a year earlier. That's the Singapore-based company's first profit gain for the period since 2015.
A solid performance from Trafigura's crude oil, gasoline, wet freight and liquefied natural gas trading desks offset a weaker outing from metals and minerals, where gross profit fell by about a third.
Trafigura joins competitors including Vitol Group, Gunvor Group as well as energy majors BP and Royal Dutch Shell and the oil trading divisions of some of Wall Street's biggest banks in posting their best start in years. Crude and products traders took advantage of a steady upward trend in prices driven by output cuts from Saudi Arabia and Venezuela.
The rebound follows a dismal performance in the first half of the 2018 financial year, which prompted Trafigura to implement a "radical restructuring" of its oil-trading books.
After four years of chasing volume growth, it reduced storage commitments, exited unprofitable term positions and halted some blending activities. The surge in first-half oil trading profit came despite a decline in volumes of about 7 per cent to an average 5.5 million barrels a day.
"In commodity markets that remained fiercely competitive, Trafigura prioritised profitable business over further volume growth and maintained a very robust financial position with ample access to liquidity," Christophe Salmon, Trafigura's chief financial officer, said in a statement.
Gross profit margins increased to 1.7 per cent from 1.13 per cent a year earlier.
While gross profit in oil trading spiked to US$1.04 billion, almost 3½ times higher than a year ago, metals and minerals gross profit fell to US$437 million from US$680 million. That's a sharp reversal from the first half of 2018 when strong metals profits offset the weaker oil trading performance.
Still, total debt rose to US$32.7 billion at the end of its first half compared to US$32.2 billion on Sept 30. Adjusted total debt rose to US$7.6 billion in the first half from US$6 billion as cash and cash equivalents fell, according to the report.
The results underscore the changing fortunes of the biggest oil trading houses. Smaller rival Gunvor disclosed last week that, after suffering its worst year ever and a US$330 million loss in 2018 that forced a major overhaul, it rebounded to post one of its best first quarters ever.
The decline in Trafigura's metals and minerals division comes as it's set to take control of financially troubled zinc smelter and miner Nyrstar NV, making it the biggest trader of the metal used to galvanise steel.
Following a restructuring of Nyrstar's debt in deals with creditors to stave off bankruptcy, Trafigura will control 98 per cent of the company's shares. The process should be completed by the end of September.
As part of the restructuring, Trafigura has provided US$250 million in bridge financing as well as a US$650 million trade finance facility. However, Nyrstar disclosed in its annual report that as of May 17, it has had available liquidity of €138 million (S$213 million).
Last week, Nyrstar declared force majeure at its Port Pirie smelter in Australia and temporarily halted production in a move that will have a "material negative" impact on production and underlying earnings in the second quarter. Nyrstar reported its biggest-ever annual loss last month.
In its 2019 first-half report, Trafigura, which is Nyrstar's biggest supplier, customer and shareholder, said it recorded a US$17.3 million impairment related to its participation in a syndicated prepayment facility with the smelter. It also wrote down the value of its equity stake in the company from before the restructuring to zero - taking a US$35 million impairment.