Trafigura Group has been exploring a series of potential transactions related to its metals business as it struggles to navigate the future of the division following a series of setbacks.
For over a year, Trafigura’s metals business has been under pressure due to shrinking profits and the blow it took from allegations of large-scale nickel fraud. This has created internal tensions within the company, especially when compared to its highly profitable energy trading arm. Additionally, Trafigura is currently facing succession issues, with executives vying for positions as one of the company’s long-time leaders announced plans to retire next year.
According to insiders, Trafigura, in its quest to compete with Glencore Plc for the title of the world’s largest metal trading company, has engaged in preliminary discussions with potential partners in the Middle East and Asia regarding this business.
These discussions encompass various possible transactions, from establishing joint ventures for new acquisitions to investing in parts of Trafigura’s metal assets, or exploring other forms of regional or global cooperation. Since these discussions have not been made public, the sources have requested to remain anonymous.
Furthermore, it has been suggested that several companies are considering bidding for parts or all of Trafigura’s metal business. However, it is unclear at this point whether Trafigura would welcome such an approach.
While the company has been open to selling stakes in its assets, it has long argued that the best model for its trading business is an employee-owned partnership. Nevertheless, some insiders have indicated that Trafigura’s executives have recently expressed a willingness to consider the possibility of opening up the metal trading business to external investors.
A well-financed partner could provide Trafigura with additional firepower for acquiring assets such as mines or processing plants, which many believe are becoming increasingly crucial for ensuring the flow of commodities needed for global trade.
A spokesperson for Trafigura stated, “We remain fully committed to our metals business, which is a key part of our energy transition strategy, and we see no reason to comment on market rumors or speculation.”
Trafigura is one of the world’s largest commodity trading companies dealing in copper, nickel, cobalt, and other metals. These discussions highlight the internal dynamics playing out within Trafigura, which are being felt globally as energy transition pushes these markets into the spotlight.
The tensions between the energy and metals businesses are not new for Trafigura but have intensified in recent months. The company reported record profits thanks to the energy crisis caused by Russia’s invasion of Ukraine, with net profits of $9.9 billion for the 12 months ending in March this year. However, its metals division has struggled to turn a profit, with nearly no operating profit in the period from March to September 2022.
Since then, the company has been hit by allegations of nickel fraud, resulting in losses of nearly $600 million. Additionally, a significant copper-cobalt project has faced cash shortages, with Trafigura leading a $600 million financing effort for the project. Insiders have revealed that the depressed metal markets have also weighed down the company’s profitability and the value of some assets.
Trafigura’s financial statements show that its metals business accounted for an average of 40% of the company’s total profits from 2012 to 2019. However, this proportion dropped to 23% from 2020 to 2022 and further plummeted to just 6% for the 12 months ending in March 2023.
The head of Trafigura’s metals development left the company last month, and several other executives in the division also departed following the nickel debacle.
Trafigura employs around 1,200 staff, which means that its metals traders directly benefited from record profits in the oil and gas sector, exacerbating tensions.
Insiders have suggested that it is widely expected within Trafigura that the metal team’s holdings will be reduced in the next round of compensation payments after the end of the current fiscal year.
Earlier this year, Trafigura announced that its long-serving Chief Operating Officer, Mike Wainwright, would step down at the end of March 2024.
Since the death of founder Claude Dauphin in 2015, Wainwright, along with CEO Jeremy Weir and Joint Chief of Oil Trading Jose Larocca, has been one of the three top executives leading the company. His departure marks the first sign of a changing of the guard at the company.