Trafigura records lowest full-year profit in 8 years amid challenging market conditions

The oil and metal trader posted a disappointing set of full-year results, with the company forced to reduce pay outs for top staff after contending with a myriad of market headwinds and increased competition.

Trafigura
Source: Bloomberg

Trafigura recorded the lowest annual profit it has seen in eight years, with the commodities trader seeing its gross profit margin hit 1.3%, down from 1.6% last year after struggling with challenging market conditions and increased competition.

The pressure on margins that the commodities trader has seen this year, has forced the company to increase volumes and make divestments, with the business seeing oil and petroleum volumes increase from 256 million tonnes in 2017 to 275 million tonnes in 2018.

‘Global GDP growth continued to support demand for energy and industrial commodities, with interest rates only slowly rising from the historic lows of recent years,’ Trafigura Executive Chairman and CEO Jeremy Weir said.

‘The oil market presented a number of challenges, including intense competition, compressed margins, reduced arbitrage opportunities and a pricing structure in which spot prices persistently exceeded forward prices.’

‘In the oil market, where backwardation set in shortly after the start of our fiscal year, we moved quickly to restructure our trading book and reduce storage commitments. This put the business on a stronger footing as the year progressed,’ he added.

Oil price troubles Trafigura

Oil prices have been in a downward spiral since hitting high of $86.29 in early October, with Brent Crude falling more than 30% to a low of $58.80 a barrel in late-November.

Oils fall from grace was driven by an excess of supply, a consequence of sanctions waivers for some countries to acquire Iranian oil, as well as large US crude reserves and glut of production spurred by US President Donald Trump applying pressure on Saudi Arabia to not cut supply.

Last week, The Organization of Petroleum Exporting Countries (OPEC) helped oil prices soar after as much as 5.4% on Friday, after the cartel finally agreed to make supply cuts after a several tough days of talks in Vienna.

The oil producing cartel eventually agreed to reduce production by 1.2 million barrels a day, with non-OPEC countries like Russia agreeing to shoulder a 400,000 barrel a day share – exceeding market expectations.

‘The oil and petroleum products Trading division had a difficult first half, but performance recovered by the end of the year,’ Weir added.

Trafigura financials in focus

The Singapore-based commodities trader, despite taking a hit to its profit margin, saw revenues hit $181 billion, up from $136.4 billion last year, while net income fell to $873 million from $886 million in 2017.

Its disappointing set of results saw the company cut share buybacks to $528 million, down from $564 million last year, as its management team was forced to take smaller pay outs amid tougher market conditions and increasing competition.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

All trading involves risk and losses can exceed deposits. Trading CFDs may not be suitable for everyone so please ensure that you fully understand the risks involved. All trading involves risk and losses can exceed deposits.