LAUSANNE, Switzerland, April 1 (Reuters) - Globalcommodities trading is undergoing profound changes as banks pullout from the sector while trading houses adapt to newregulations and expand into physical assets.
Top executives and co-owners of some of the world's largesttrading houses discuss new trends at the FT Commodities Summitin Lausanne, Switzerland this week.
The following are some of their comments at the event.
SWITHUN STILL, DIRECTOR OF SOLARIS COMMODITIES
On sanctions against Russia:
"I do not expect sanctions to hit the grains market. The oilmarket brings in a week the same revenue (to Russia) that thegrains market brings in a year so if they are going to targetanyone it's going to be oil and gas and a couple of banks, it'snot going to be the grains sector."
GLENCORE XSTRATA CEO IVAN GLASENBERG
On whether private equity will do well in the miningindustry:
"Now there are a lot of private equity guys startingcompanies, a lot of guys who left the industry and startedprivate equity groups ... It's never worked in the past ... Theproblem, I think, with private equity in the past is that to getreturn you had to have massive gearing. And the problem with thecommodity space, if you have a high gearing, is that you are notrunning Boots Pharmaceuticals, where you have a pretty constantearnings base. (In mining) you just don't know your earningsbase. When you hit bad times, like we did recently, it goes downlike that. And how are you going to feed your debt?"
"Unfortunately you have to shut mines if mines are notprofitable. We are working for shareholders. We have got to dothe best we can at our operations to make sure we are notoverspending ... You have to understand the market, you can'tjust sit there in a cocoon and say 'I am going to overproducebecause I am cutting my costs'. You have to look if demand isreally there."
"Greenfield has stopped," said Glasenberg, adding that thisshould help support commodities prices. Curtailed productionwill gradually lead to a spike in commodities prices a few yearsdown the road. Then the new cycle will come when miners startinvesting in greenfield again, he said.
"If we wait a bit longer (during the next cycle), theChinese might say we had better go (invest in mining) ... Theyhaven't done it so far, we did it for them."
BUNGE LTD CEO SOREN SCHRODER
On whether Chinese trader COFCO's acquisition of assets inorigination business will change the market:
"I think it is wholly consistent with the food securitystrategy of the Chinese five-year plan. It makes all the sensein the world that COFCO China wants to be connected somehowdirectly to the source. My view is that COFCO will continue tobuy and transact with all commercials in addition to these.China is bigger than one or two companies. But it is a way todeal with the fact that they no longer are claiming to beself-sufficient. It is a shift, but I really doubt it willdramatically change trade flows overnight."
CHRISTOPHER DELBRUCK, CEO OF E.ON GLOBALCOMMODITIES
"I am pretty confident there will be no interruption onenergy flows from Russia to Europe. It has not happened in thelast 40 years. People omit the fact that there are 60 milliontonnes of coal brought into Europe and there are (many) oilbarrels coming in. Those two commodities play a role."
NOBLE GROUP CEO YUSUF ALIREZA
On whether trading firms should adopt a more hybrid model,becoming involved with financing and buying assets too:
"None of us should be arrogant enough to assume one model isright and one is wrong. As a CEO you need to decide what modelis right for your firm and have conviction in that view. From aNoble perspective, our core competence is in the middle part ofthe supply chain ... We are not miners, we are not farmers, weare not a bank ... so our model is to partner with those guysrather than compete with them."
PAUL REED, CEO OF BP SUPPLY AND TRADING
On financial regulation:
"The threat to business can be quite significant if we getit wrong," he said, adding that higher capital requirements wereone of the biggest worries as they tied up vast amounts ofadditional capital for trading purposes. If interest rates wentup around the world, this may reduce the ability of traders tohold sufficient stocks and that could become a threat tostability of supplies, he added.
VITOL CEO IAN TAYLOR
On Russia-Ukraine crisis:
"Some of us are old enough to remember the end of the ColdWar days. In the energy space, gas and oil have tended tocontinue to flow because it is in the interest of both sidesthat they continue to do so," he said, adding he was moreconcerned about instability in the Middle East and a shutdown insupplies from Libya.
GUNVOR CEO TORBJORN TORNQVIST
On Russia-Ukraine crisis:
"It is business as usual at Gunvor ... Russians are verypragmatic. Business and politics are much less integrated thanyou may think ... The current (Ukrainian) crisis will becontained."
MARCO ALVERA, SENIOR EXECUTIVE VICE PRESIDENT AT ITALIAN OILMAJOR ENI, RESPONSIBLE FOR TRADING
"Certainly shale gas is something Europe should do asopposed to resist. And we probably need to convince some of oursuppliers that if gas prices do not come down, demand willdisappear. Every new coal-fired power plant in Europe meansfewer Russian jobs for decades. Europe collectively is in astronger bargaining position than we think."
"There is shale gas in Ukraine. The cycle to bring it toproduction is three to four years. There is also conventionalgas. There are opportunities for conventional gas in Ukrainethat were planned to be exploited before the crisis ... There isnot enough gas in Ukraine to shift the energy balance inEurope."
"On gas, we have potentially a much more serious problem insupply disruptions in Europe because of the Ukrainian situation.In relative terms the gas disruption is more serious than theoil disruption because it is much larger ... It is 30 percent ofEuropean demand."
PAUL CONWAY, CARGILL VICE CHAIRMAN
On Chinese appetite for agricultural commodities:
"The issue is scale ... In the next 10 years, they (China)could easily be the world's largest importer of corn and wheat."
JUAN LUCIANO, PRESIDENT AND CHIEF OPERATING OFFICER, ARCHERDANIELS MIDLAND CO
"We don't have assets in Russia and this is something wewant to correct over time."
He said ADM has assets in Ukraine, including facilities inthe port of Odessa, a crushing plant and a small unit in Crimea.
On Ukraine, he said: "We have had no problems so far ... Sofar, so good," adding that good weather had allowed cropplanting there to go ahead of plan.
"We see the global economy actually accelerating in 2014and 2015, driven mostly by the most developed economies ... andprobably emerging markets broadly flat."
"When we look at the U.S. economy we see the fundamentalsvery solid - low inflation rates, we see a resilient housingmarket and actually we see some strength in industrial activitydriven mostly by the energy revolution in the U.S., which isbringing a renaissance in the U.S. and not only in the GulfCoast but also in the northern part of the U.S."
"In the case of China, they have just abandoned theobjective of self-sufficiency in grain, which I think is a smartthing to do, because I think it's taking too much of a toll ontheir resources. China has 20 percent of the global population... As I think of them relying more on global markets, it makessense that they have a strategy to have a higher ability toacquire, to originate grains around the world and trying toinvest in infrastructure to facilitate the movement of grainbecause at the end of the day they are going to be an importer."
(Reporting by Silvia Antonioli and Dmitry Zhdannikov; Compiledby Dale Hudson)
BP (BP.)
Glencore (GLEN)
