Commodity Traders Saw $100 Billion Year as Market Boomed, Says Report

(Bloomberg) --

Commodity traders saw record gross margins of about $115 billion last year on market volatility driven by Russia’s war in Ukraine, according to a new report.

If confirmed by trading companies’ annual profit figures — many of which haven’t been released yet — this would reflect an increase of about 60% over the previous year, consultants at Oliver Wyman showed in the study.

The aftershocks of Russia’s invasion a little over a year ago sent commodity prices from energy to metals and grains on a tear. That volatility, along with sanctions and export restrictions, created arbitrage opportunities for traders as the world’s energy and food supply maps were redrawn.

“Trading firms that spent years developing their portfolios, agile culture and expertise were well positioned to handle the disruption and keep commodities flowing,” the study said. It didn’t list individual firms.

Industry gross margins have roughly tripled from $36 billion in 2018, with those of independent trading houses now far outstripping others in the sector, according to the report. The margins — the difference between the sales and purchase price of goods, minus direct costs such as financing and freight — are used by traders to assess their performance.

For the first time, the consultancy’s analysis split out hedge fund numbers into their own section, having merged them with others previously.

“Hedge funds more or less left commodities after 2010-2011, but over the last two to three years they’ve really built up their capabilities in a return to the market, and quite successfully so,” Ernst Frankl, who leads Oliver Wyman’s global commodity trading and risk practice, said in an interview. 

(Updates to reflect that gross margin figures are estimates throughout)

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