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In the first half of 2022, global commodity trading giant Glencore made headlines many times due to rumors, bribery and market manipulation.
In early March, the epic short market of London nickel attracted widespread attention in the market, and the market rumored that "Glencore forced the short Tsingshan Group, the driving force behind the soaring nickel price, to seize 60% of the equity of Tsingshan Group in Indonesia's nickel mine". In the end, Tsingshan Group replaced the domestic metal nickel plate with its high-ice nickel, and allocated sufficient spot for delivery through various channels.
On May 24, under a joint investigation by the United States, the United Kingdom and Brazil, Glencore admitted years of bribery and market manipulation in many countries around the world, and agreed to pay fines of up to US$1.5 billion (about 10 billion yuan).
Recently, Glencore made a fortune in the Russian-Ukrainian conflict, predicting that trading profits in the first half of this year will reach a new high, exceeding $3.2 billion, once again put it in the spotlight
So, who is Glencore, who frequently broke out scandals? How did commodity traders have such a huge impact?
Lick blood from the tip of a knife in the global economy
Even if little attention is paid to it, and little scrutinized, commodity traders have become a vital part of the modern economy, without which gas stations would be without fuel, factories would be shut down, and bakeries would be without flour. In the words of Ludwig Jessison, one of the "pioneers" of the commodity trading industry, they are "international exchangers of important commodities."
Established commodity traders are like superships lurking in the deep sea, creating vast empires of wealth, touching every corner of the globe in business, and engulfing resource-rich countries into the international financial system. These capital magnates and powers conduct traditional transactions.
The influence of commodity traders is not limited to the economic sphere, and their control of the world's strategic resources also gives them a powerful political role. Traders carrying millions of dollars are guests of the leaders of African countries in the Middle East and Latin America, and in Iraq, commodity traders helped Saddam Hussein sell oil to avoid United Nations sanctions; In Cuba, they and Fidel Castro exchanged sugar for oil to help the Cuban Revolution; They also secretly sold millions of tons of American wheat and corn to the Soviet Union to support Moscow during the height of the Cold War. Igor Sechin is the owner of Russian oil giant Rosneft and an ally of the Russian president.
They extract huge profits from risk, commodity traders play a vital role in the global economy, and understanding the interplay of money and power in the modern world, how oil and metals flow out of resource-rich countries, and how cash flows into the pockets of tycoons and kleptocratic rulers requires understanding commodity traders. They often advertise themselves as apolitical and motivated by profit rather than the pursuit of power. But in fact, many commodity traders have shaped history.
Most people know little about the power and influence concentrated in the hands of a few commodity traders, including regulators and governments. To some extent, this is intentional. Commodity traders, which are mostly privately held and have little obligation to disclose information about their activities compared to publicly traded companies. Traditionally, many traders see their advantage in obtaining information as a competitive advantage. Therefore, they go to great lengths to avoid revealing any information about themselves. Ian Taylor, chief executive officer of Victor, the world's largest oil trading company, once told the author of The World of Trading, which demystified commodity traders: "I wish you didn't write this book." ”
Stealthy and massive Glencore
As the world's largest commodity trader, Glencore and several other commodity frontiers have already de facto surpassed the biggest Wall Street investment banks such as Goldman Sachs, Morgan Stanley and JPMorgan Chase to become the most profitable industry group in the past decade, and in August 2022, Glencore ranked 23rd on the 2022 Fortune Global 500 list. Most of these businesses are privately controlled, non-public companies, which makes their wealth even more secretive and staggering.
In 2019, the five major commodity traders traded $865 billion, more than Japan's total exports. Mark Ritchie made a good profit during the 1979 oil crisis and should be included in one of the top ten for-profit companies in the United States. In the decade before 2010, commodities trading boomed, with the three commodity trading giants Glencore, Victor and Cargill combined, exceeding the profits of world-renowned business giants such as Apple and Coca-Cola combined. (See Table 1)
Over the years, Glencore has transformed itself from a third-party organization that simply markets commodities to a diversified natural resources group by acquiring and developing agricultural, mining, smelting, refining and processing production assets.
Since the nineties of the last century, Glencore has established a set of profit models different from traditional commodity trade, in which traders no longer simply earn profit by making a difference in price, but by providing direct financing or other supply chain financial services in exchange for stable product underwriting rights and competitive prices of mining production enterprises, and then take advantage of Glencore's leading advantages in logistics and warehousing, with the help of commodity futures and derivatives instruments, choose the right time and place for delivery operations. Take advantage of space-time or information to make profits.
From 2005 to 2019, through crazy leverage and rapid expansion through mergers and acquisitions, Glencore was no longer simply a commodity trader, but a global integrated mining enterprise integrating mining, smelting, production and trade.
At present, Glencore has formed a business structure of simultaneous trade and self-production, energy, metal minerals and agricultural products three-wheel drive, forming the first industry position of zinc ore in the world, the third in copper ore and the fourth in nickel ore, and is also the world's largest seaborne thermal coal exporter, oil trade as its traditional advantage to make a fortune, its global proportion is as high as 15.28%, in short, Glencore has an absolute dominance over metals and energy.
Glencore: A barbarian who rules are subverted
"Glencore may lack some of its prominent business history and the goodwill accumulation that accompanies it, but at the same time it has less constraints and has more room for trading and expansion." A head of the bulk trading department of a large state-owned mining enterprise said, "To use an inappropriate analogy, in today's commodity trading industry, the old aristocracy still retains its power, and the young nouveau riche who does not play according to the routine and has no taboos is more able to call the wind and rain." ”
The commodities trading industry is known for bribery and corruption, and traders speak out about it. Javier Blass, chief correspondent for Bloomberg News, in an interview with Thorbjorn Turnquist, co-founder and CEO of oil trader Gunvor, said: "Unfortunately, this matter has been plaguing the commodities trading industry. There are a lot of scandals in the industry, and a large part of these scandals will never surface. ”
Commodity traders are notorious simply because they are involved in the field of corruption. Glencore's founder, Mark Ritchie, played a key role in shaping people's perceptions of commodity traders. In many ways, Mark Ritchie was one of the founders of the modern commodities trading industry. The godfather of oil was hunted by the US judiciary for 20 years, during which time he remained in hiding in Switzerland. He was charged with two crimes: one for tax evasion and the other for trading with Iran while dozens of Americans were being held hostage in Tehran.
Despite the world's awareness of the reality of climate change, traders have been slow to change and remain heavily dependent on the polluting commodities industry. Coal is one of the most important sources of profit for Glencore, the world's largest coal exporter. Glencore CEO Glazenberg, who began his career in the coal industry, once boasted that the world was "thirsty" for coal, and he is still fanatical about it. Oil and gas remain vital to many of the top traders, and traders such as Glencore, Vitol and Georgia do not seem to be in moral trouble. They simply argue that as long as the world continues to consume fossil fuels, they will continue to trade. However, even if they are not worried about their impact on climate change, the public debate over fossil fuels still poses a threat to their business.
In Glencore's M&A history, the most famous is its acquisition of Xstrata, a 405-day "merger of the century" in which Glencore CEO Gerasenberg did not hesitate to threaten the world's richest sovereign wealth fund and engage with government regulators.
Using financial leverage to leverage commodity trade, controlling the exploitation of natural resources with commodity trade, and ultimately breaking the industry boundaries between downstream traders and upstream producers is exactly the new industry market order that Glencore intends to establish in the "M&A of the Century".
As Javier Blass, chief correspondent for Bloomberg News, wrote in The World of Trading, "In many cases, commodity traders remain lawful and ethical in order to make a profit, and these traders are the last adventurers of global capitalism: they are willing to do business in areas that other companies dare not step into, combining ruthlessness with personal charisma to strengthen business empires." ”
This article is excerpted from The World of Trading, CITIC Press, published in August 2022
Review Book Giveaway What do you think caused this wave of global inflation? Has inflation peaked and when will it subside?