Trafigura profit surges despite war raising trading risks

Bloomberg

Trafigura Group posted record first-half profit, even after Russia’s invasion of Ukraine forced the commodities giant to pare back its activities as trading risk soared.
Wild swings in prices and arbitrage opportunities helped to deliver net profit of $2.7 billion in the six months through March, Trafigura said in a report. At the same time, the war sharply increased risks as it upended markets, compelling the company to curb trading volumes and inventories.
As commodity prices soared in late February, Trafigura’s value at risk — a measure of how much the company could lose on a normal trading day — also shot higher. Over the six-month period, the VaR averaged $244 million, more than five times the previous year’s average.
Trafigura’s first-half report provides an insight into how trading houses grappled with roller-coaster markets as the war in Ukraine and sanctions threatened to curb supplies of energy, grains and metals from Russia.
That involved taking action to limit exposure to out-sized price moves and margin calls from brokers, while maintaining the flow of the world’s key natural resources.
“Actions were swiftly taken to bring back the VaR within
acceptable risk limits, including but not limited to reducing stocks and traded volumes
as well as entering into back‑to‑back trades,” Trafigura said in its results.
In the immediate aftermath of the invasion on February 24, risk surged even higher
with the VaR rising beyond Trafigura’s target of keeping it below 1% of group equity.
While the company didn’t provide a breakdown for the post-invasion period, the figures imply risk rose to levels uncomfortable for even the biggest of trading houses.
Before the invasion, Trafigura’s VaR had averaged just $86 million. By May, the trader said it had brought down that measure of risk to $139 million, back within what it says were acceptable limits.
Subsequently, policymakers from the Dallas Fed to the International Monetary Fund have called for greater oversight of commodity markets, while lobbying groups are campaigning for regulation to make it easier to post margin against exchange positions.
The war in Ukraine is providing an awkward but highly profitable moment for commodities traders.