Commodities 2014

INDICESFebruary 2014 | L’Agefi | Monthly supplement | N°02 CommoditiesThe trading industry at a turning pointThe role of TradersBetween perception and reality pages6-8A time for TransitionAdapting to changing flows pages 9-13 Trade Finance Innovation for new challenges pages 14-18Ethics and TransparencyOpening to new partnerships pages24-26A guide to Careers pages 24-30YOUR NEEDS . OUR SOLUTIONS KENDRIS is the leading independent Swiss > Trading accounting: general ledger, financial provider of fiduciary and family office ser- planning and controlling vices, accounting and outsourcing services > Management of payroll and social security for private and corporate clients, national > Business valuation and international tax and legal advice, ART > Internal control system management as well as trust services. > Legal advice: creation of companies, contracts, directorship > Tax advisory services: tax returns, negotiation of tax agreements, implementation of optimized tax structures For any additional information, send an e-mail to Geneva | Lausanne | www.kendris.com [email protected]



PAGE . Indices | | February 2014 | CommoditiesIndices Pillars of Swiss Economy A guide to careers An industry on the move The trading and shipping sector represents an estimated Although Geneva is an international commodity trading hub, the 3.5% of the Swiss gross domestic product and the distribution industry and its employment opportunities are still little known among Commodity traders contribute to a better of commodities has been ingrained in Switzerland’s economy the general public. Commodity trading is not about sitting behind a allocation of resources. From the early 1970s for decades. As an industry, we wanted to take this opportunity screen with a phone. Moving cargo from a producing when cereals and oleaginous were the main to try and explain what we do and how we do it. country to a consuming one requires much more. trades to now, their role has deeply evolved. David Fransen, GTSA. page 7 Franca Tufo, TBS Human Resources & Services. The demands of civil society are high but should page 24 be tempered by a sound understanding of traders’ business. Yves Simon, University of Paris Dauphine. page 4Editorial A time of complete rebalancingWith the rise of emerging countries in the late After critical changes in demand, the supply specifically the Lake Geneva region – is home to1990s, volumes and amounts associated with chain is now facing a dramatic change in offer. a large number of trading houses and associatedcommodity flows have reached a scale unthinka- The rise in oil prices has galvanized technologi- services, whose revenues have grown with theble fifteen years ago. cal innovation, paving the way for the exploi- expansion of trade and higher prices.The offer – inadequate because of poor invest- tation of vast reserves of shale oil and gas in Sometimes suspected of secrecy and often mi-ment in earlier years – was unable to match North America as well as the development of sunderstood, these companies – together withthe increased demand from China and India as more conventional drilling previously not consi- their umbrella organizations – are striving towell as Korea, Taiwan and Turkey, generating dered viable. The depletion of older deposits is shed light on their activities and the rationalepressure on prices. China, whose oil consump- forcing mining companies to explore farther behind an expansion that is not fundamentallytion has multiplied 2.5 times between 1998 and and deeper. The development of large acreage in related to financialisation.2012, is the largest net importer of crude oil Russia, South America, and tomorrow in Africa, For these issues of unprecedented magnitudesince September 2013, on a par with the United attempts to respond to the growing needs of are not going to fade away. The balance ofStates. In nominal terms, the price of oil rose countries in full demographic explosion. power will keep shifting. And the commodityfrom US$12 per barrel in 1998 to over US$102 To cope with increasing demand and extreme flows will adjust to these changes, with a posi-in 2012, peaking at US$147 in July 2008. Me- diversification of supply, transport and logistics tive impact on the commodity trading industrytals and food have also reached unprecedented – at the heart of commodity trading activities in Switzerland.price levels under the combined effect of rising – have become immensely more complex,energy costs, growing demand and, in the case with a significant impact on the financing Nicolette de Joncaireof agricultural products, adverse weather condi- of trade flows on the one hand and of infras- Journalist L’Agefitions. The price of wheat has increased by 250% tructure on the other, at a time when thesince 1998. The so-called commodity supercy- financial crisis restricted the ability of bankscle, corresponding to the adjustment of global to fulfill their traditional role.flows, was in full swing. For historical reasons, Switzerland – and moreContents - 24th of February 201404. Profile of a sector in constant 12. The Chinese Dragon: still changing 18. Interview. Alexandre Karrer, SFI evolution over the last thirty years. the face of non-ferrous metals. «Dialogue between the federal authorities and traders has become very intense»Yves Simon, Professor of Finance, Antoine Carassus, Senior Copper Trader, Transamine TradingUniversity of Paris Dauphine focus: Ethics and transparency || Toward a reassessment of transport. 20. The evolving commodity trading 06. Commodity trading: governance architecture. Samuel K. Gayi, Head,not a well-understood activity. Eric André, President and CEO, Suisse-Atlantique Special Unit on Commodities, United Nations ConferenceStephane Graber, Secretary General, GTSA 13. Interview. Steve Terry, Vitol on Trade and Development «The rebalancing of world oil production 07. Trading & Shipping: and its significance were unthinkable 21. Interview. Claude Wild, DFAE Pillars of Swiss Economy. five years ago» «Progress is achieved through the cooperation and collaboration of stakeholders»David Fransen, President, GTSA focus: Trade finance 14. Lessons learnt and recent trends 22. Interview. David Rosenberg, Ecom08. Interview. Marco Dunand, Mercuria in financing commodity flows. Agroindustrial. «Sustainability is a key «A vector of flexibility and optimisation» survival issue for foodstuffs merchants. Guillaume de La Ville, Group CFO, Milio International DMCC Not an option.»focus: A time for transition09. The Swiss hub: a long tradition. 15. The successful adjustment to a new focus: a GUIDE TO careers context. Pierre Glauser, General Manager of 24. Commodity trading: a business with Urs Schneider, director, IFCI, International many faces. Franca Tufo, Head hunter, TBS HumanFinance & Commodities Institute Crédit Agricole (Suisse) Global head of commodities financing Resources & Services10. Has commodity trading reached 16. Trade Finance funds: a solution for a turning point? Benoît Lioud, Senior Business traders and investors. Nicolas Sanchez, 27. A wide range of professional courses.Analyst Mercuria Energy Trading || World marketsin 2013 and outlook for 2014. Philippe Chalmin, Partner and Board Member EuroFin Asia Swiss Silviane Chatelain, Education & Training Manager, GTSAProfessor of economic history, University of Paris-Dauphine 17. An innovative approach to address the 31. Interview. Bernard Morard, UNIGE new challenges in financing trade. Christophe «The curriculum at the University of Geneva11. Opportunities in a changing market. has a world monopoly thanks to internships» Salmon, Chief financial officer for Europe the Middle EastDavid Fyfe, Head of Market Research & Analysis, Gunvor and Africa, Trafigura || The surge in trading credit|| Soft commodities: driven by the weather. funds in 2013. Philippe Steiner, Federal expert on ban-Michael Von Luehrte, Global Head of Agricultural king economics Managing Partner, Commodity Trade InvestCommodities Research, Noble ResourcesIndices is a supplement to L’AGEFI, daily publication of l’Agence économique et financière à Genève | President Alain Duménil | Managing Director-Chief Editor François Schaller | CEO Agefi SA Olivier Bloch | Deputy manager, DevelopmentsLionel Rouge | Deputy manager, Business develo-pment Norbert Fouchault | Chief Editor Indices Danielle Hennard | Journalists Nicolette de Joncaire, Olivier Pellegrinelli | IT Guy-Marc Aprin | Graphic design Sigrid Van Hove | Translation Intertexto Gabrielle Rivier | Regular contributors Alain-Max Guénette, Daniel Held, François-Serge Lhabitant,Thierry Mauvernay, François Savary, Philippe Schindler | Administration Rolande Voisard | Marketing Khadija Hemma (021) 331 41 09 | Subscriptions (021) 331 41 01 – [email protected] | Advertising French speaking Switzerland Ludovic Lejeune Tél. (021) 331 41 12 – [email protected] Germanspeaking Switzerland Béatrice Leuenberger Tél. (044) 254 39 21 – [email protected] | Printers IRL. Renens | Copyright © Any reproduction of articles and illustrations published is prohibited unless written permission of the editorial staff | Head Office Rue de Genève 17, Case postale 5031, CH-1002Lausanne, tél. (021) 331 41 41, fax (021) 331 41 55, www.agefi.com | Photos Front page iStockphotos

PAGE . Indices | | February 2014 |Commodities The key to commodity trading is the never-ending adjustment to a constantly evolving world.Yves Simon / Professor of Finance, University of Paris Dauphine Profile of a sector in constant evolution over the last thirty years T rading has changed considerably since the 1980s. This evolution to stock markets. From 1985-1990 onwards, regulation has entered a new dimension. For has gathered speed since 2005, the derivatives on OTC markets started affec- physical traders, the impact of bank regulation but the fundamental aspects re- ting commodities. Options, swaps, caps, floors was indirect but immediate. Banks have indeed main unchanged from “the good and collars multiplied with less intensity than reduced the amount of credit they used to grant old days”. By buying commodities on financial markets, but grew nevertheless. to finance trading operations. at production sites and selling them at consump- Financial innovation went a very long way with tion points, the dealer contributes to a better the financial assets held by long-only investors, Things became very tense and the situation allocation of resources. He does this by trading index traders, and the creation of commodities- was not relieved until the two LTROs of €500 physical products and covering his risks by tran- based ETF/ETC. Other long-term trends include billion each. The problem of financing trading sactions on the derivatives market. competition among dealers, the growing compe- operations has not, however, tence of the commodities producers/sellers and been structurally resolved. The requirements In 1973 cereals and oleaginous were the of the users/buyers, which resulted in reducing The traders will have to find of civil society traders’ margins. new means of financing. are very high. main traded commodities. To stabilize their results and profit margins, In the current atmosphere But they should Between 1974 and 1980 the spot markets in commodity trading companies started acquiring of re-regulation, the banks be tempered by a petroleum products and crude oil emerged. The industrial and logistical assets. However, this have reduced their activities transactions in these markets soon surpassed upstream and downstream integration exposes on physical markets. They the volumes exchanged in other commodities. traders to two risks: that of changing their ma- have even announced that The progressive dispersal of OPEP opened the nagement style and of losing in flexibility what they were attempting to sound understanding road to traders specialized in energy products. they have gained in security. sell their commodity-based of traders’ business. The rapid development of the futures markets Ultimately, this integration increases their long- assets, leaving a great void. in fuel oil, petrol, crude and term financing needs, with a new challenge Who will acquire them and That is the objective gas enabled new financial to address. How? Through the stock market? what will become of rela- of the variousThe development operators (investment funds, Through long-term debt? Through the support ted activities? Will the new contributionsof physical commodity hedge funds, arbitragers, of sovereign funds? owners have the risk culture in this magazine.markets has paralleled “Wall Street refiners”) to en- The takeover of J. Aron by Goldman Sachs in and the know-how of thethe financial derivatives ter these markets. However, 1981 marked the sudden emergence of invest- big banks? this vast supply of liquidity, ment banks in the commodities world: not onlymarket revolution. benefiting the operators see- the trading of financial instruments backed by Final “anecdote”. In September 2012, theInnovation is not king to cover their price ris- commodities, but also that of physical products. role of energy traders led the Deputy Governorconfined to stock ks, had some shortfalls. Physical traders were no longer the only ones of the Central Bank of Canada to speak about Before 1974, physical traders to play in the top league. On physical markets, systemic risk! But where are the leverage effects were the main operators on banks did not exactly duplicate trading compa- and shadow banking that could justify such amarkets. futures markets, the setting nies, but they became part of the landscape, with risk? objectives that did not necessarily match those NGOs have been very demanding for a long of futures prices being fun- of the traders. time. The requirement for traders to behave damentally linked to phy- Not only was there a wider group of players, ethically is legitimate. There is nothing wrong sical markets. After 1985 volumes initiated by but the realm expanded and competition inten- with it. Transparency is another ballgame. It has physical traders continued rising, but their im- sified. New producers appeared. New customers not always been the strong point of physical portance declined in favour of that of financial emerged, whose needs would become greater traders, but things have changed considerably. operators in relative terms. than those of developed countries. How to cope Many trading companies are now listed on the The same evolution was seen in metals, with the with this? stock market, and the regulations applying to emergence of a futures market in aluminum, The new financial aspects of commodity them are very strict. In addition, the non-listed the loss of influence of the large producers and trading were not the only factors in the evolu- traders who seek finance through long-term the development of transactions initiated by tion. Regulation was another. Although indirect, debt are required to disclose their financial si- financial interests on all derivatives of non- its impact has been significant since 2008. tuation to investors. Not all traders are listed ferrous metals. Traders are not regulated as such, but the deri- and not all look for long-term credit, but those What was true of energy and metals applied to vative markets indispensable to their activity are. that are neither listed nor in debt are very few all other commodities. Though not really restrictive, the regulation has and far between. become more significant with the CFTC Act of This evolution of commodities physical 1973. Unquestionably, this law has made mar- The requirements of civil society are very markets took place at the same time as the revo- kets more transparent and increased the security high, but they should be tempered by a sound lution in financial derivatives markets with the of the operators’ transactions. understanding of traders’ business. That is the emergence in Chicago, between 1975 and 1981, With Basel 3, the Dodd-Frank Act and EMIR, objective of the various contributions in this ma- of forward contracts secured with financial ins- gazine. They help to better define the face and truments, a revolution that would spread to the contours of a sector in constant evolution.  entire world. The innovation was not limited



PAGE . Indices | | February 2014 | Commoditiesfocus The role of traders A sound understanding of the Swiss commodity trading and shipping sector is vital to tackling its challenges.Commodity tradingNot a well-understood activity zerland. It is characterised by high added value further reinforced the need for traders to grow employment and a contribution of 3.5% to GDP their credibility and guarantee their good repu- Stephane Graber – more than tourism (2.7%) or the pharmaceuti- tation. This understanding has been translated cal industry (3.3%). According to estimates, some by the establishment of strict codes of conductCSecretary General, GTSA 500 companies and more than 10,000 people instilled in all employees, and by the expansion ommodity trading has been pur- work in this sector1. Taking the resulting impact of internal control departments. They have also sued in Switzerland since the into account, the total number of jobs genera- stepped up their dialogue with the producers Middle Ages, thanks to its advan- ted by these companies in Switzerland adds up through multilateral platforms as well as by par- tageous geographical position at to 27,3002. For the canton of Geneva alone, the tnerships with the communities, the producer the crossroads of European com- sector’s contribution in taxes is close to 400 mil- cooperatives, international organisations and the mercial routes. Nevertheless, the lion francs, and a good deal more if the taxes of local NGOs.role of traders is still little known, as they are not the banks active in financing this business werein direct contact with the end consumer. taken into account. Added to these measures is a network of Switzerland holds first place in the international Swiss and international legislation that formsHistory teaches us the decisive importance trade of several commodities (see graphics below), an increasingly dense andof traders in guaranteeing producers’ access to as well as in inspection, certification and finan- complex legal frameworkmarkets, and customers’ access to resources. cing. This success is the result of a combination targeted at the commodities The growth ofThe value chain of commodities implies a very of history and of internationally recognised lo- involved, activities deployed the sector theselarge spectrum of players, such as governments, cal expertise as well as the competitiveness and and the different countries last 10 years is aextractive and mining companies, farmers and openness of Switzerland in the global economy. in which the trading com- reflection of the agricultural cooperatives, The activities of traders depend largely on panies operate, starting with globalisation of traders, shipping and trans- the development of the international commer- the American and European the economy whichGeneva offers a port companies, processing cial exchanges. The growth of the sector these legislations to which theyunique and multilateral industries, insurers and tra- are de facto subjected. For de development banks. In a last 10 years is a reflection of the globalisation of the main players in the sec-platform for the world in constant evolution the economy, which has favoured the develop- tor there are no fewer than has favoureddeliberation and and increasingly globalised, ment of the BRIC countries and the phenomenal 70 regulatory authorities the developmentimprovement of the a good understanding of the growth of international trade. This exceptional that supervise and control of the BRIC countriesinternational manage- role of traders in this value increase in demand is at the origin of the «super- their activities. and the phenomenal chain is indispensable for a cycle» of commodities. Also worth mentioning is thement of commodities. clear view of the challenges The developing economies, particularly in Asia, decisive role played in recent growth of interna- confronting it. As commodi- have enormous needs in all commodity catego- years by traders in the surge tional trade. ties are distributed unequally ries. Asia is investing heavily in production tools in fair-trade products, where in the world, the role of the that attract a progressively broader range of com- action is essential in the pro-trader is to balance offer and demand through modities. Trading, whose role it is, finds itself at motion, distribution, adap-transport, storage and conversion operations. the forefront of the development of these new tation of the logistic circuits flows, of new commercial routes, and of the sa- and training of the producers. These efforts canThe trader plays an essential role between tisfaction of this demand in terms of additional only bear fruit, however, with pressure from theproducers and consumers as organiser of the va- volumes and qualities, contributing thereby to final consumer, a pressure often lacking, exceptlue chain. In a globalised economy where flows the growth of its own economic activity. for commodities such as coffee, cocoa or palm oil.are becoming more intense, more complex, the There is increased competition among the prin-trader must act as intermediary for information, The sector in Switzerland is challenged par- cipal trading centres of the world. To defend thisliquidity and risk control between economic ticularly in the face international competition. source of wealth, it is vital for Switzerland toagents with varied expertise, embodying an in- The significant growth of the commodities trade maintain its economic competitiveness and ex-terface between all levels of the logistical chain, in Switzerland has aroused increased interest in pertise while favouring the promotion of goodand facilitate the realisation of transactions by the branch, revealing a gap between the percep- practice. Geneva offers a unique, multilateralmanaging the operational and commercial risks. tion of the sector and its actual functioning. platform for the deliberation and improvementThis service is carried out in Switzerland by tra- Reflecting on the transparency and social res- of the international management of commodi-ding companies with the help of local expertise ponsibility of the companies, the trading firms ties, with respect to the commercial imperativesand a multicultural, multilingual workforce. are fully aware of the stakes and have engaged of the sector and taking into account all the actorsThe publication in March 2013 of the report on proactively in the voluntary improvement of in the value chain: consumers, processing com-commodities by the Federal Council highlighted their governance. The increased needs for bank panies, traders and states. It is why the industry,the economic importance of this sector in Swit- finance due to the rise in commodity prices have through GTSA, actively supports the multilate- ral dialogue on the voluntary measu- res initiated by theSHARE OF COMMODITY TRADING IN THE LAKE GENEVA AREA Swiss authorities.  10% 15% 5% 20% (1) Basic report: Commo- 5% Others Americas Others Others dities, report of the com- New York 10% modities interdepartmental S5i%ngapore 50% (US & Brazil) 50% 15% 35% Europe 35% platform for the attention10% Lake Lake Singapore Lake Lake of the Federal Council.Zurich Geneva 15% Geneva Geneva (2) Estimate based on an area Paris area Geneva area employment multiplier of 20% area 2.6, calculated by the Hamburg 20% 20% London New York & Houston 15% 25% Amériques 20% London Singapore Créa Institute in the framework of the study COFFEE SUGAR OIL GRAINS, RICE AND OILSEED ordered by the Canton ofSource: GTSA Geneva in 2012.

PAGE . Indices | | February 2014 | Commodities ||| The role of tradersTrading & Shipping: Pillars of Swiss EconomyThe trading and shipping what we do and how we do it. Therefore this the distribution platform of collaboration among the industrysector represents an estimated edition includes articles from a range of parti- of commodities and in exchange with the authorities and civil3.5% of the Swiss gross cipants in our sector, some of whom have been has been society, our sector is contributing to the educa-domestic product. located in our region for many years. We hope ingrained tional programme of the University of Geneva, it will bring a better understanding of our busi- in Switzerland’s which has as its main objective the development ness, which over the course of the last century economy of local talent wishing to work in this industry. has become a significant contributor to the eco- for decades. The trading and distribution of commodi- nomy of the Lake Geneva region and Switzer- ties has been ingrained in Switzerland’s econo- land as a whole. my for decades. We hope that by contributing to a professional education that is accessible locally, David Fransen The trading and shipping industry’s young people will have a better opportunity to growth and commitment to Switzerland can start a career in this exciting sector.SPresident, GTSA be traced back to the politically and economi- witzerland, and Geneva in particu- cally stable environment, the proximity to trade the industry is significantly lar, has over the last decades esta- financing banks and to the country’s openness contributing to the blished itself as an international hub to international markets. One can easily observe educational programme for trading and shipping companies. from the technological sector’s development in of the University of Geneva. In essence, we physically move Silicon Valley that industries often grow in pat- commodities from one point on the terns of interdependencies which enhance com- Supporting education to employ qualifiedglobe to another, thereby providing the world mon interests. Similarly, the Geneva region has people is only one of our sector’s benefits toeconomy with the resources it needs – whether become home to a large number of companies Switzerland and the Geneva Community. Weit be energy, food or metals and minerals. Howe- providing services along the entire value chain, are committed to working with the Swiss autho-ver, getting the right product to the right place from physical trading to shipping, trade finance, rities on regulation of certain markets and trans-at the right time is a highly complicated process, logistics, cargo inspection to certification, trade parency to ensure that Switzerland continues torequiring extensive technical knowledge. One insurance and countless related services. be a good place to conduct business consistentcargo of gasoline or one shipment of grain is not Nowadays, the sector represents an estimated with global standards. We hope that the currentthe same as another. The properties of commo- 3.5% of the Swiss gross domestic product, which edition will contribute further to this ongoingdities vary and the logistics entailed in moving stems from around 500 commodity companies dialogue. them around the world are influenced by a my- located in the area.riad of factors, from climate to availability to the There are also lesser known benefits of our sec-distance they have to travel. tor’s presence. One example, and a strong signAs an industry, we wanted to take the opportu- of our commitment to the Geneva Region, is thenity of this edition of Indices to try and explain creation of GTSA in 2006. Through this unique 2014 TRADING FORUM COMMODITY MARKETS AT A TURNING POINT Business, social community and regulatory bodies analysis In a constant evolving commodity landscape, the Trading Forum is a unique opportunity to learn from experts and stakeholders. TUESDAY, MARCH 18 FER - GENEVA FÉDÉRATION DES ENTREPRISES ROMANDES 14:15 – 18:15 (followed by a networking cocktail) For detailed program and registration: www.internationaltrading.unige.chSponsored by:

PAGE . Indices | | February 2014 | Commodities ||| tHE ROLE OF TRADERS InterviewMarco Dunand | Mercuria«A vector of flexibility and optimisation »The commodity trading By consolidating risks in each cate- industry attracts a lot of gory and region, including the risks attention. But what func- across commodities, in order to avoid tion does it fulfil? What is the dangers of a partial view, of com- its economic contribution? partmentalisation. All our risks are What skills does it bring assessed by a centralised team in theto the table? Why does it invest in in- Netherlands, which sets the limitsfrastructure seemingly unrelated to its for trading. And these limits for eachcore business? And where does it stand trader are controlled by independentin terms of ethics and value sharing? supervisors.We meet Marco Dunand, co-founderwith Daniel Jaeggi of Mercuria Energy You have acquired different types ofTrading. infrastructure. What do they bring to the service you offer?How has the role of the trader evolved in Our function is to optimise the sup-the last ten years? ply chain and therefore to identifyThe role of the trader is to match sup- weak points and bottlenecks. Whenply to demand. This used to be based we perceive inefficiency in thison very restricted information. Tech- chain, we acquire corresponding as-nological innovation in the form of the sets in order to improve the overallinformation revolution, and increased functioning. These investments cancompetition have profoundly altered old be made in gas or oil exploration,practices. Price movement, for example, warehousing or refining units. Theis no longer privileged and has become purpose of these assets is to supportavailable on all screens, second by se- and supplement supply.cond. As a result, trading margins have We are not manufacturers and, as farshrunk and trading houses must create as we are concerned, infrastructurevalue by optimizing the supply chain in investment is not an end in itself. Itorder to survive. This is a trend that has may even occur that a particular ac-developed more in the past three or four tivity generates no margin or a loss.years than in the preceding 30. It is its role as a link in the chain that interests us. When inefficiencies in aWhat is this added value? supply chain get resolved in time be-By efficiently matching supply and de- cause other players enter the market,mand, traders generate added economic we resell the assets. The root of ourvalue in both exporting and importing job is to intervene where things gocountries. The underlying principle of wrong.our durability is to ensure the highestpossible price to the producer and the Is it possible to speak of the verticali-lowest possible price to the buyer. We sing of your sector?are not mere brokers charging a margin All trading houses are different but,between buying and selling prices. We Marco Dunand. Founder of Mercuria Energy Trading with very few exceptions, none seeksbuy goods at the place of production, 1980 Studies economics and management at the University of Geneva. verticality. Those that do would nostore and process them if necessary, and 1986 Joins Cargill International SA in Geneva and specialises in oil trading. longer be considered as belongingthen ship and deliver to users. 1987 Joins J. Aron, the Goldman Sachs commodity trading division based to our industry but fall, for example, in London, as Head of crude trading for Europe. into extractive industries or distribu-What skills does it require? 1994 Becomes head of European and Asian operations for Phibo, tion. In fact, if we must find a wordIn the first place, it requires detailed Salomon Brothers in London. for our diversification, I would speakknowledge of the goods and their flows, 1999 Launches Sempra Energy Trading in Europe and Asia. more readily of «horizontalisation»which calls upon a wide variety of disci- 2004 Founds Mercuria Energy Trading with Daniel Jaeggi. because our expertise extends acrossplines. Our Geneva office employs 220 the chain.people covering 40 different professions.Among them you will find logistics operators specialising in electrical grids There is confusion between physical trading and extractive industries, whichthey watch 24 hours a day. And meteorologists able to provide weather attracts critics from NGOs.forecasts 1, 2 or 5 days ahead (on an hourly basis in our Houston office). Lumping the two together is very common, whereas in reality, we operateWe also need to know the maintenance plans of nuclear power plants (and in very different areas. In the case of trading, the rules are well established.be aware of any incident associated with them), as well as the level of coal For example, we do not deal with groups or countries subject to sanctionsstocks. Collecting and consolidating data to forecast electricity supply and imposed by the international community. However, it is not for us to de-demand has become infinitely complex. But the necessary understanding is cide these rules and sanctions. The moral responsibility lies with states ornot limited to technical aspects. Our financial specialists manage cash flows the United Nations. Nonetheless, we operate a system of internal vettingand our compliance officers enforce all existing regulations, whether related – assisted by a subscription to a service specialising in criminal recordsto safety, pollution or money laundering. This alone covers a huge range of – because we do not want to deal with the wrong people. We are oftenrules that extends to the fifty countries where we operate, including all the more selective than laws and regulations would require.ambiguities and possible contradictions among the different legal contexts.Not to mention the insourcing of complementary skills in downstream ac- Do you believe that companies have an ethical responsibility vis-a-vis theirtivities, such as refining, for example. Combining this knowledge allows us environment?to understand where the demand is and how best to satisfy it. I prefer to answer with an example. A few years back, we engaged in biofuels trading and, in this context, transacted palm oil. Before any Eu-Is energy management becoming more complex? ropean legislation was implemented, we joined the Roundtable on Sustai-Today there are 5 to 7 different sources of energy integrated on the same nable Palm Oil (RSPO) out of concern for the environment, ahead of anyelectrical grid, for which the prices are consolidated so as to optimize ca- legal obligation. In terms of pollution we set the bar higher than what ispacity. The deployment of renewable energy, particularly solar and wind, imposed by legal requirements.modifies the stability of networks, which requires continuous rebalancingbetween supply and demand on a short term basis. In a country like Ger- Should traders play a role in achieving a more equitable distribution of value?many, which derives 27% of its electricity from solar and wind generation, The world is changing. It is fair that originating countries benefit fromthe impact of weather on prices is significant, with a volatility which can the production of commodities on their territories, and their citizens havevary from 1 to 1000 falling back to 1 in a matter of hours. Furthermore, mobilised to this end. Ten or fifteen years ago a handful of foreign groupsthe same power plant can convert from gas to coal and vice versa. Not to controlled production. This is much less true today and the share of miningmention, depending on the nature of the energy source, the impact of the rights reverting to producing countries is increasingly important. That said,price of CO2 certificates. this rebalancing – assured by higher royalties – has more to do with oil and mining companies than with trading. This level of sophistication makes your activity vulnerable to very diverse risks.How do you manage them?  Interview Nicolette de Joncaire

PAGE . Indices | | February 2014 | Commoditiesfocus A TIME FOR TRANSITION Commodity trading companies are keeping in line with the profound changes in global markets – a shift to greater openness.The Swiss hub: a long tradition Urs Schneider Geneva region, among which leading groups In 1976, it was Bunge’s turn to set up its Eu- Director, IFCI, International Finance such as Noble. Established in 1878, SGS transfor- ropean/EMEA headquarters in Geneva. With med grain trading in Europe by offering innova- some 35.000 employees, it is active worldwide,G& Commodities Institute tive agricultural inspection services. Moved from mainly in agribusiness. iven its landlocked position, Paris to Geneva in 1915 during World War I, In the shipping arena, Suisse-Atlantique was it may come as a surprise that the company was registered in Geneva as Socié- founded in 1941 by the André group and still Switzerland has such a long té Générale de Surveillance in 1919. It grew to exists today. MSC, founded in 1970 as a private and strong tradition in inter- offer diversified services from inspection, tes- company in Geneva, is now the world’s second national trading. Over the cen- ting, and verification and certification services largest shipping line in terms of container vessel turies, medieval market places across a variety of sectors, including industrial, capacity; as of 2013, MSC has been operatingsuch as Geneva and Basel have developed into minerals, oil, gas and chemicals. 474 vessels in all major ports of the world.today’s worldwide trading centres for commo- After the bleak end of the two world wars Under the leadership of Christian Weyer in thedities. From Roman to Medieval times, these and the ensuing cold war, Geneva – building on 1970’s, Banque Paribas (now BNP Paribas) wascities acted as focal points for north-south and Calvin’s heritage, the Red Cross and its huma- at the beginning of the transactional financingeast-west European trade, but the 19th century nitarian tradition – developed into a prominent of trade, and contributed strongly to the develo-was truly the golden age of Swiss trading com- centre for the United Nations, notably UNC- pment of the sector in Switzerland. It was laterpanies. The liberal regime established between TAD, the ITU and the WTO, which attracted followed by Crédit Agricole, Credit Suisse, UBS1815 and 1848 vastly contributed to the develo- hundreds of NGOs. and several other banks, which developed Tradepment of these firms. In parallel, it also attracted commodity trading Finance activities in Geneva, complemented byIn Basel in 1759 J.R. Geigy started as a colonial companies and related services, such as Inter- a network of insurance companies. Training andgoods company, later to become Novartis. Henri national Arbitration, founded in Geneva in the education was also provided early: first by IMDNestlé founded his company in 1866; it is today 1920s. Beyond the cosmopolitan, multilingual Business School as of 1946, followed by IFCIthe world’s largest food and beverage company. environment, other factors played an important in 1984 and the joint venture of GTSA and theNot far from Basel, in Alsace, Louis Dreyfus was role: the early telecommunication infrastructure HEC of the University of Geneva in 2006, andfounded in 1851; it later moved to Paris, and and the Swiss franc, the only currency – with HEID.has today established offices in Geneva. Volkart the dollar – to be freely convertible at the time. The first oil crisis in the seventies is theBrothers was founded in Winterthur in 1851; it The Levantine, Turkish and Arab traders origin of the boom in foreign trading companieswas soon a leading trader in tropical goods and, of Egyptian cotton and colonial goods – but also operating from Switzerland, making it the num-up to 1989, the world’s 4th largest cotton trader, industrialists like Nick Hayek of Swatch fame ber one cluster in the world.later becoming part of DKSH. – moved to the region following the Egyptian In the 1990’s the disintegration of the USSRIn the 1860’s three Swiss entrepreneurs sailed revolution of 1956, looking for a stable business brought new companies such as Gunvor orto Asia and created in a few generations what is environment and a safe currency. Litasco to Geneva, which resulted in a uniquetoday DKSH, a group with four business units US-based Cargill/Tradax, the world’s largest concentration of commodity actors characterised(consumer goods, healthcare, performance ma- agricultural trading company, opened offices in by their qualified, multicultural, multilingualterials and technology) and 680 branches. UTC Geneva in 1956, soon followed by many other workforce. The optimal time zone between Asiastarted off in 1859 as a Basel-based mission tra- US multinational companies. and the USA and the friendly fiscal environmentding company active in African oil, financed by Vitol settled in Geneva in 1972 and Glencore added strength to a hub strongly supported bywealthy Basel families. Last but not least, André Xstrata originated in 1974 when Marc Rich left the Swiss and Geneva authorities.& Cie opened in Lausanne in 1877; the privately Phibro to set up his own company in Zug. Rich From 2003 to 2011 alone, Swiss revenue fromowned group lasted over 123 years, and contri- expanded the spot market for crude oil and star- the commodity trade increased from 2 billion tobuted to the development of a strong cluster of ted to trade with less capital and fewer assets, some 20 billion francs. The sector employs overcompanies in soft commodities based in the Lake backed by finance from banks. Others followed, 10.000 specialists, in some large companies and including some former Rich traders, including hundreds of small trading firms. The contribu- Trafigura’s. tion to the Swiss GDP now reaches 3.5%, more than either the chemical industry or tourism. 

PAGE 10. Indices | | February 2014 | Commodities ||| A TIME FOR TRANSITIONHas commodity World marketstrading reached in 2013 anda turning point? outlook for 2014Trading companies have of credit lines, but the growing interest of tra- The market continues to respond to theprogressively modified their ders in physical assets naturally leads them to three major sources of uncertainty: China,business model, in line with diversify and augment their sources of finan- climate and geopolitical tensions.the profound changes in cing. Turning more readily towards Asia andmarkets and in public the financial resources that accompany econo- Philippe Chalminperception. Having become mic growth, trading companies are increasinglymore visible, the commodity transparent from a financial standpoint, and are WProfessor of economic history, University of Paris-Dauphinegroups are called upon by civil obliged to be convincing in their procedures and hile the world economy struggles to overcomesociety to help clarify the business models. It is also a prerequisite when what Joseph Stiglitz calls the «Great Malaise»,current debates. approaching the enormous potential offered by the fact that world markets in commodities financing through private debt or funds. Obtai- remained at high levels in 2013 indicates that Benoît Lioud ning agency ratings is a tangible sign of greater the major shock that began in 2006 is far from Senior Business Analyst openness. over. The year 2013 was marked by the rela- tive stability of oil prices, the substantial fall in the prices of agri-I Mercuria Energy Trading Having become more visible, the commodity cultural products, from corn to coffee, and the good performance n the course of the last decade, commo- groups are called upon by civil society to help of the metal markets; the gains of some compensating more or less dity markets have undergone numerous clarify the current debates and participate in for the losses of others. However, in a macro-economic context profound changes supporting their glo- the spread of better practice. At the heart of the without real fault lines, each market had its own story, reacting balisation and integration. Specialists in economic and environmental issues, the world with more or less force to three major sources of uncertainty: these markets, commodity traders have of commodities is of strategic importance to China, the climate and geopolitical tensions. gradually evolved their business model many countries. It is also at the intersection of In a few years China has become the determining factor for prac-to adapt to these structural changes. Pushed to- many domains. Obser- tically all the world markets. It is simpler to list the products forward increased diversification, they extended vers and actors of the which it is not important, such as coffee or cocoa. But in 2013their activities to numerous other sectors and first order, traders can The world of China became one of the keys to the world cereal market, fromexpanded their range of activities. Having naturally make an im- commodities is of which it had been absent up to that time. And what about the 820become more visible and present in the value portant contribution strategic impor- million tonnes of imported iron ore (+10%) or the 63 million ton-chain, it would seem that the trading sector has to the debate. Alert to tance to many nes of imported soy beans (+8.6%)?arrived at a turning point, that of greater open- the slightest imbalance, countries. traders The markets have thus existed at the rhythm of the economic –ness toward the world around it. they are at the heart of are true driving as well as political – heartbeat of the Middle Kingdom. In 2013The business model has been transformed the changes under way. forces and play the growth of Chinese demand remained the main supportand enriched in several ways. Trading compa- As true driving forces, a dynamic role in element of world markets. And logically, this will remainnies have moved away from their historic model, they play a dynamic unchanged in 2014.primarily centred on the logistics linked to the role in the spread of As for climate, 2013 was almost a «normal» year, and agriculturalmovement of merchandise. Vectors of flexibility best practice and stan- production set new records: nearly 2.5 billion tonnes of cereals, forand broadening the potential for choice, physical dards proposed by so- example! Predictably, this had a strong negative impact on grainassets guarantee trading companies an essential cial partners. What role the spread of prices, especially on corn and oilseeds. Wheat was more resistant,presence in the value chain, enabling them to would we want to see best practices thanks to the needs of the Mediterranean and, of course, China.remain competitive. Present in numerous seg- them play? What is the We are far from reaching some «end of history» in geopolitics. Itments of the market and for different products, sector’s contribution and standards has to be said, however, that the current tensions have had littlethey can thus develop synergies among their to global economic ba- proposed by impact on the markets. The civil war in Syria, the nuclear pro-different activities and increase their knowledge lance and the optimal social partners.. blem with Iran, the African wars in Mali and South Sudan, theof trends. But this diversification into the more allocation of resources tensions in Egypt, Tunisia and Libya, have failed to ruffle the se-industrial sphere of their profession also confronts throughout the world? renity of the oil market, which has shown amazing stability. Thistraders with the challenge of integration. New How can the political is related to the adjustment achieved by OPEP and especially byskills, new professions, new partners, a new authorities or the non- Saudi Arabia, and the decline in US needs with the developmentinternal organisation are gradually being put in governmental organisations influence the trader of shale oil production, partially compensated for by the Chineseplace to harmoniously integrate the very diffe- to confront today’s great challenges? and Indian appetites.rent company cultures. Integration goes hand What stage has the investment cycle reached? The strong tensionsin hand with communication. A great many questions are now ad- in prices since 2006 have again brought commodities to the in-Traders must always be sure that they have dressed to a sector that traditionally evolved vestment forefront. Contrary to received wisdom, the fact thatthe necessary means to continue anticipating shielded from the major political questions. In commodities became an asset class in its own right, substantiallytrends. Markets are more and more intercon- the same way, the growing integration of com- increasing the volumes handled in the world’s derivatives mar-nected, and the dynamics of price have become modity markets with financial markets presents kets, has not had a negative effect on prices in the medium term.more complex and difficult to understand. In some real challenges to the authorities responsi- On the contrary, it has had the merit of bringing sufficient liqui-this context, traders favour partnerships with ble for the stability, security and effectiveness of dity to the market to permit operators to cover their risks, inclu-their business counterparts. Whether through these markets. After an unprecedented financial ding long-term risks.capital connections or commercial arrangements crisis, the regulatory reaction is natural, but the On an entirely separate topic, investment decisions in new pro-mixing the exchange of physical products, debt juridical thrust sometimes collides with a highly duction capacity to meet demand are of a very different nature. Itor participation, closeness between partners is complex reality. Through the diversity of their is the weakness of investment linked to lacklustre prices at the endessential, especially as credit risk often remains a operations, traders are at the heart of a judicial of the 20th century that is at the root of the imbalances that causedmajor obstacle to be overcome. Building business network that often presents them with problems the skyrocketing prices in the years 2006-2013.relations above and beyond the simple exchange of consistency. At this legislative turning point, It is obvious that investment in new capacity remains inadequate.of merchandise is an exercise that demands a which mixes international governance and in- If we reflect on the impact it could have beyond China in the de-good deal of effort from companies historically ter-market regulation, traders are called upon cade to come, we can better understand the message conveyed byreluctant to share their know-how. to make their contribution to the definition of the current high prices in the markets.Diversification has a price, however, and tomorrow’s regulatory framework. A major sha- What’s ahead in 2014? Most analysts agree that the world econo-the financing needs of traders have evolved in ring of experience is in sight. my will be stronger in 2014. Nevertheless, many factors – climatica spectacular way. The increase in commodity and geopolitical – could affect this relative serenity. The worldprices is of course responsible for the inflation We can see it; trading has gradually been has made little progress in the control of instability. International transformed to accompany the profound chan- economic coordination remains largely wishful thinking. By their ges in the markets. This long process of adapta- diversity, their sensitivity to the slightest economic, geopolitical or tion has operated without much publicity and natural accident, commodity markets are probably the best reflec- often autonomously. Still, the challenges that tion of the tensions in a world seeking new ways since the dawn now open up before us can hardly be unders- of the century, often for the better, sometimes for the worse. The tood by one person; henceforth more inclined to «Great Malaise» is not over.  open up o the outside world, traders seem ready to embrace the turn to cooperation, where each will have a role to play in transforming expecta- tions into results. 

PAGE 11. Indices | | February 2014 | Commodities ||| A TIME FOR TRANSITIONOpportunities in a changing marketMajor physical energy trading unlikely major trading houses will become fully To navigate gically complement its daily trading activity, andhouses have in the last decade vertically integrated as the “international majors” this new now possesses more than USD 2 billion worth oftransformed from a role have traditionally been, successful companies environment investments in industrial assets spread throughas merchants to being have found ways to diversify in beneficial ways. each trader the world, including in Europe, North and Southincreasingly embedded There have been several forces driving this trans- has taken America, Africa and Asia. Each asset enables Gu-all along the supply chain. formation, including: its own path. nvor to better manage its trading platform by  A need by physical traders to respond to dimi- offering an enhanced understanding of sourcing David Fyfe nished pure trading margins, caused by sharply and distribution components, to diversify its in- lower price volatility post-2009; come streams and to strengthen its competitivePHead of Market Research & Analysis, Gunvor  A desire to diversify their portfolio of products position amidst rapidly changing markets. hysical traders are inherently resi- and geographies to spread risks; A good example is the Ust Luga Oil Products lient, with a historical track record  Opportunities arising from international oil Terminal on the Baltic Sea, constructed from of rapid innovation and effective companies, independent companies and invest- greenfield and wholly-owned by Gunvor. It is risk management. They are built ment banks divesting physical assets on a geogra- considered to be the largest rail-ocean transshi- to confront changing business phical or sector-specific basis; pment terminal in the world, with a projected environments by making adjust-  A need for increased optionality for trading capacity of more than 30 million metric tons perments in location, structure, funding, operating operations (access to “flow”) with corresponding annum, 960.000 cubic metres of storage, and anregime and strategy. Size matters, up to a point, logistical, arbitrage and operating efficiencies. ability to handle 300,000 dwt vessels. The ter-but so too does the ability to remain nimble as This change in emphasis among physical traders minal significantly enhances Gunvor’s logisticsnew investment and trading opportunities arise. has had significant implications for the way the capabilities for refined petroleum products trans-This is why, over the last decade, major physical companies operate, for their corporate structure, portation, and also provides a material, stabletraders have evolved from being just merchants and for how they are financed. It has opened earnings stream.to being increasingly embedded all along the them to greater public scrutiny than in the past, Such investments are a part of Gunvor’s long-energy supply chain. and has seen them subject to increased oversight standing strategy to enable continued growth inToday, most major physical traders have deve- by national and international regulators – with turnover and profitability, while retaining theloped a greater presence in concrete, industrial now more than 70 regulatory authorities world- unique business attributes for which traders areassets compared to any historic profile the indus- wide covering health and safety, insurance, emis- renowned. The company’s structure, geographi-try has had. These include refineries, pipelines, sion and environmental control, product, cargo cal and sector presence, and strategy have effec-storage, terminals, and upstream. Although it is and counter-party due diligence, international tively adapted to meet changing market condi- trade and sanctions legislation, and banking, ex- tions. Gunvor, along with its competitors, will change and derivatives market rules. continue to react dynamically to changing mar- To navigate this new environment, each trader ket conditions, while its core business remains has taken its own path. the safe, efficient movement of physical energy Gunvor, for one, has been investing in downs- commodities from where they are sourced and tream, midstream and upstream assets that strate- stored to where they are needed most. Soft commodities: driven by the weatherThe agricultural commodity corn exporters of the world. Supply response to Acreage America and the Black Sea – and strengthenedchain production and supply higher prices was strong and immediate for expansion is ties to China and other Asian importers. Invest-chain is global and interlinked. grains. For coffee and sugar it took quite some limited so seed ments in port elevation and internal logistics ca-Weather but also political time to expand acreage and/or increase produc- technology pacities are still lagging behind as demonstratedinstability have become tivity. Cocoa had little expansion as prices remai- and crop by a current waiting time for vessels in Brazilincreasing concerns. ned too low for too long to drive any expansion. protection will of 30 to 45 days (it reached a record of 90 days The grains markets also benefit from a 6 months gain even more last year). The fire at a Santos sugar warehouse Michael Von Luehrte planting cycle between Northern and Southern importance aggravated the bottleneck in Brazilian logistics. Global Head of Agricultural Commodities Hemisphere so the economic incentives to the so that farmers Logistic investments in the Black Sea area are farmers are important signals on which crop can produce also increasing and there have been some invest-AResearch, Noble Resources to plant. One of the major changes in the 90’s more on the ments in Africa. gricultural commodities are es- was the opening up of the Western frontiers same area. The usual challenges in agricultural commodities sentially supply driven markets, of Brazil. Farmers are able to plant 2 crops – a trading are disruptions caused by weather. There weather being the key variable. bigger summer crop for beans and cotton and a is also an increasing concern about political ins- The market goes through boom smaller winter crop for corn or cotton. This boos- tability in many producing countries which can and bust cycles to bring supply ted returns and turned Mato Grosso into one of hamper trade flows, lead to government inter- in line with demand. During the the major agricultural areas of the world. There ventions, withholding of products and higher2009-2012 period, agricultural markets enjoyed was also noticeable expansion of production in taxation of producers and even to trade barriersa bull market supported by tight underlying the Black Sea. despite new WTO agreement. As described ear-supply and strong demand, fueled by limited These examples show how global and in- lier agricultural commodity market are enteringacreage expansion, a growing world population terlinked the agricultural commodity production a period of significant oversupply and pressureand changing habits in nutrition. Key demand and supply chain is. But also consumption is mo- on farmer margins. The function of the marketscame from Chinese consumers looking for more ving towards increasing demand in emerging is to ration supply to bring supply/demand intoprotein. During the bull market producers ram- markets, rising income levels remaining the key balance over the next 2-3 years.ped up production levels and expanded acreage driver for continued demand. After years of tight Looking ahead the main challenge for agri-– with a time lag as soils need to be prepared and supply/demand, agricultural markets are moving cultural commodity producers will be to feedseed material and fertilizers made available. towards surpluses again and the lower price cy- an estimated additional 3 billion people by theThe major agricultural expansions occurred cle has already started. Individual commodity year 2050. Given that acreage expansion isin South America, mainly for soybeans, corn, cof- supply/demand equations explain reduced cor- limited, seed technology and crop protection willfee and sugar. But production levels of palm also relations between the individual markets. Com- gain even more importance so farmers can pro-expanded in Indonesia and India turned from modities underperformed in 2012 vs equities duce more on the same area. The race for morea net food importer to an exporter with a noti- and bonds, which led investors to reduce their food will also open up new frontiers in Africaceable surplus production of sugar, wheat and exposures. Reduced investment coupled with – the continent with the largest land reserves.rice but also a 25% increase in cotton production over-supply keeps volatility levels low. Increasing production is important but at thehelped by the introduction of higher yielding Reduced bank participation in commodity same time infrastructure needs to be built, usual-hybrids. In 2012 the record drought in the US trading has opened up more space for traditio- ly a much slower and longer-term process.led to a steep drop of grains production and the nal trading companies. The global players are Food security, traceability and sustainability willemergence of Brazil and Ukraine as the major concentrated due to large capital requirements also be topics impacting agricultural commodi- and to withstand the risks associated with ties producers, traders and processors and consu- trading activities. mers. Despite these challenges there will be many To adapt to new trade flows and the develop- opportunities for trading companies to grow ment of BRIC countries, trade houses increased their business. Expansion will require capital but investments in two main production areas – South also specialized manpower. 

PAGE 12. Indices | | February 2014 | Commodities ||| A TIME FOR TRANSITIONThe Chinese Dragon: Toward astill changing the face reassessmentof non-ferrous metals of transportChina needs securing raw certainly a net importer, primarily for the bat- The shifts in energy resourcesmaterials and commodities. tery industry. are transforming the transport of oil,This involves purchasing them The story with copper is not different and gas and coal.but also investing in production probably more impressive. Over the last 10 yearsthrough joint ventures or there has been a dramatic increase in the buil- Eric Andréwholly owned entities. ding of smelter and refineries and as a result in the import of copper concentrates. To put it TPresident and CEO, Suisse-Atlantique Antoine Carassus into perspective, Chinese production of copper he opening of shale oil and gas extraction in the concentrates is relatively small having increased United States and China, the independence of theCSenior Copper Trader, Transamine Trading from 1.5 million MT to 1.8 million between United States in oil and gas, the future exports of gas hina’s industrial growth over 2011 and 2013. At the same time the imports of by the United States and the autonomy of China by the last 20 years has significant- copper concentrates into China have increased 2020 with 30% of the gas, are factors that are brin- ly changed the dynamics of the from 6 million MT to 10 million MT over the ging profound changes to maritime transport. non-ferrous commodities busi- same time period. Whether the rate of increase Between 2007 and 2012 the import of heavy oil to the United Sta- ness in both the areas of produc- can be maintained has to been seen, however tes decreased from 13 million to 7 million barrels a day, a decrease tion and consumption as well as the trend of increased imports certainly seems of 50%. The export of petroleum products from the United Statesin the services sector. As mentioned above we well entrenched, even during a time of “slower” grew from 1.2 million to 2.6 million barrels a day. The produc-need to look at this from the side of raw mate- growth in China. tion of oil in the United States reached its highest level in the lastrials as well as the production and consumption So from the 1990s, we have witnessed a mas- 10 years.of metal. For example in the early 1990s, China sive increase in production capacity in China for By 2015 the United States will certainly be self-sufficient. It willwas a net exporter of zinc concentrates. various metals. However as we have seen with no longer need to import either oil or gas, and will become anIt was not until half way through the decade that copper they can certainly not satisfy their demand exporter a few years thereafter.the balance changed and it became a net impor- or even marginal growth from domestic produc- The production of natural gas in the United States increased fromter. A situation that has continued to the point tion. This has led to a new facet: the Chinese 20 million MMcf in 2007 to 25 million in 2012. Imports plun-whereby China imported 3 million metric ton- securing raw materials and commodities, not ged from 5 million MMcf a day in 2007 to 3.5 million in 2012,nes (MT) of zinc concentrates in 2011. However through purchasing them as imports from third while exports of 0.8 million MMcf in 2008 grew to 1.6 millionas a result of increased local production from parties but through investments either as joint in 2012.4 to 5 million between 2011 and 2013, we have ventures or as wholly owned entities.seen a parallel drop in imports down to 2 mil- This is notable but certainly not limited to Afri- The independence of the United States, which was thelion MT. ca where Chinese companies have invested in world’s largest importer of oil, followed closely by China, com-The same can also be said for lead, which saw whole production units; for example Chambishi pletely changes the situation of maritime transport. The import ofnot only an increase in concentrates imports but Copper Smelter in Zambia produces approxima- oil transformed into the export of gas givesalso a massive increase in domestic metal pro- tely 200.000 MT of copper blister/metal. At ano- The principal China the possibility of importing oil moreduction. For the most part globally lead metal ther plant that was visited whilst under commis- impact on easily as need dictates.was fire refined (99.97-99.99), however the sion stage, it was unavoidable to notice that the maritime Global reserves of oil are considerable, asChinese production increases were mostly elec- vast majority of the workers were Chinese. So transport are reserves of gas, and discoveries continuetrolytic, producing a much cleaner high quality not only do they undertake the financial invest- is the large apace.of lead up to 99.999. So in a period of less than ment but they also control the complete building increase in With the United States no longer needinga decade from the mid 1990s, we saw China of the operation using their own people as well traffic to Asia, Middle-Eastern oil, the geopolitical situa-become not only a leading producer but also a as trucks and machinery all being imported from and the decrease tion is changing. Moreover, the opening upleader in terms of quality, which is something China. All of which leaves a lasting impression of Iran offers a source of cheap oil for Asia,that the Western world has not recovered from, when in the middle of the African bush. so a good part of the transport hitherto de-as we have seen the closing of lead smelters/re- Their involvement in mining and smel- ployed toward the US will be redirectedfineries on a regular basis, the most recent being ting companies in other countries may not be so towards Asia.Herculanaem in the US. obvious but the pattern is clear. It is a country to the United The decrease in energy production by nu-However one cannot negate the impact of that is very cash rich and understands that it does States. clear power plants, especially in Europe andincreasing environmental constraints contribu- not have the resources to meet its own demand Japan, will lead to energy production usingting to these closures. The trend of domestic at present, let alone in the future because of its coal, in turn causing increased demand forconsumption has also changed, once again from growing middle class. It needs to secure raw the import of coal, especially in countries, such as Japan, that lackbeing large exporter of metal, whilst now it is materials on a long term basis without having sufficient natural resources. to rely on third parties – and it is doing so by The transport of dry goods will be strongly influenced by these securing these raw materials at source. Commo- new demands. dity merchants will have to adapt to these new patterns and further develop the value of their The increase in Russian gas exports, which has just been an- services to resist the Chinese Dragon.  nounced, will also change the flow in the transport of gas from this country, which will affect the East as much as the West.The Quest: Energy, Security, and the Remaking The Frackers: The Outrageous Inside Story of the New As a direct competitor of oil, natural gas will take an ever largerof the Modern World Billionaire Wildcatters place in the production of global energy, with connections exten-Daniel Yergin Gregory Zuckerman ding from the United States and Russia toward Asia, in compen- sation for the import of oil. In dry goods, the increase in demandPenguin Books, 2012, 832 pages, USD 15.51 Portfolio Hardcover, 2013, 416 pages, USD 18.94 for coal, as much for the production of steel as for the productionISBN 978-0143121947 ISBN 978-1591846451 of energy, will considerably increase transport by sea in the co- ming decade. The global decrease in energy consumption due toA master storyteller as well as a leading Everyone knew it was crazy to try to the current crisis has strongly reduced the transport of oil, whichenergy expert, Daniel Yergin continues extract oil and natural gas buried in will be compensated for by the transport of gas when things getthe riveting story begun in his Pulitzer shale rock deep below the ground. back to normal.Prize-winning book, The Prize. In The Everyone, that is, except a few reckless A restructuring of oil transport, especially of petroleum products,Quest, he shows us how energy is an wildcatters – who risked their careers the production of which takes place largely in the Middle East,engine of global political and economic to prove the world wrong. “The will lead to more sophisticated ships being employed.change and conflict, in a story that Frackers, Zuckerman’s second book, is The main impact on maritime transport is in the considerablyspans the energies on which our civi- told with care and precision and a deep increased traffic toward Asia and a reduction toward the Unitedlization is built and the new energies understanding of finance and corporate States, with a strong concentration on the development of trans-that are competing to replace them. politics...” The New York Times port for natural gas. We are no longer concerned about a lack of fossil fuels; reserves increase from year to year. 

PAGE 13. Indices | | February 2014 | Commodities ||| A TIME FOR TRANSITION InterviewSteve Terry | Vitol«The rebalancing of world oil production andits significance were unthinkable five years ago »Supply and demand in global energy markets is changing So Europe seems to be the big loser dramatically. Consumption has moved «East of the Suez Indeed. It has lost its main gasoline Canal» and the shale revolu- market and faces fierce competition tion has unleashed the vast in petrochemicals. 13 refineries have closed in the last five years and the remaining ones are threatened bypotential of North American reserves. the capacity under construction inSteve Terry, chief strategist at Vitol, the Middle East. Over the next fewconsiders the meaningful transforma- years, refining capacity in the Mid-tion in energy flows. dle East will increase by 1.5 million barrel per day with several new unitsHow would you summarise the most of up to 400.000 barrels per day ex-significant changes? pected onstream. Existing IndianBoth supply and demand have been export refineries are even larger, updeeply affected over the last decade. Oil to 600.000 barrels per day. Russiademand in developed countries – Euro- also has big plans to increase upgra-pe, Japan, Australasia, South Korea and ding capacity and export lower sul-North America – has fallen significantly phur diesel, although these appearand demand growth has moved «East to be delayed. The US, the Middleof the Suez Canal» to China, South and East and India are better placed andSouth-East Asia. Chinese import demand European refining has lost competi-is now on a par with the US, which re- tiveness, with the exception of a fewmains the world’s largest importer of niche markets.crude. China consumes approximately10.9 million barrels per day and produ- How does regulation impact the energyces around 4.6 million, importing the landscape?balance. Government policy is one of theOn the supply side, fossil fuels are un- most important factors in all aspectsdergoing a revolution. The increase in of the energy market, whether it beoil prices in the early 2000s incentivised extraction, processing, consumptiontechnological innovation, and made or commercial flows; for example,possible the development of huge non- the US crude export ban – an issueconventional oil and gas reserves in of great contention at the moment.America, as well as the further exploita- Similarly, drilling or fracking regula-tion of conventional oil fields that were Steve Terry. chief strategist, Vitol tions which facilitate business in thepreviously seen as uneconomic. Such 1977-80 Studied Economics and Social Sciences at Leicester University. US are more restrictive in Europe.changes in the world’s oil production, 1981 Joined Petroleum Economics, a specialist research consultancy, Other examples include the preferen-and its implications, were unthinkable as a researcher. tial tax treatment of diesel in Europefive years ago. 1996 Became CEO of Petroleum Economics. or subsidised gasoline consumption 2002 Petroleum Economics acquired by KBC Advanced Technologies plc. in Saudi Arabia or Venezuela, whereWhat is the impact of shale production 2005 Joined Vitol as Head of Research. petrol at the pump is the cheapest inin the United States? the world. Asian refineries benefitUS crude oil production grew by more from government support whilst thethan one million barrels a day last year. Gas production in the US has also tax treatment of North Sea crude in South Korea creates a trade that wouldbenefited from fracking technology, driving the price of natural gas in the otherwise make little sense. From 1st January 2015, the introduction of aUS down to 25 dollars a barrel in oil equivalent terms. These two factors, sulphur limit of 0.1% (as opposed to the current 1%) will be imposed oncombined with the ban on crude exports from the US and resulting dis- bunker fuel in the North Sea, the Baltic and around US and Canadiancount of US crude, have made refining in the US much more profitable coasts. This will drive ships away from bunker fuel to gasoil when theyand incentivised US refiners to maximise output. As a result, American im- operate in these waters. Government policy shapes energy markets conti-ports of crude and petroleum products have decreased significantly, around nuously.7% per annum in the last two years in the US. How large is the impact of changing oil production on infrastructure whetherShale reserves are not limited to North America it be processing or transport?Shale is present in many countries – for gas, China has the largest reserves, These changes have a huge effect everywhere. In the US, transportingthe US the second largest and Argentina the third. The key question is crude from North Dakota or Canada to the Gulf refineries has requiredwhether these reserves can be recovered at an economically viable cost. the flow reversal of some pipelines – such as the Seaway pipeline between Cushing and the Gulf – and the construction of others. Pipeline capacityWhich areas are most negatively affected? under construction amounts to several million of barrels per day and, inFor oil producing countries, the most affected are those producing crude oil the interim, rail has emerged as an effective way to transport crude oilwhich is of a similar type (“light, sweet”) to that being found in the US. A throughout the continent to reach distant refiners. Trucks can also be usedlot of this type of crude was previously exported from West Africa to the if necessary, but economies of scale make them less efficient. As globalUS. Today, it is more profitable for crude from West Africa to be exported oil and gas trading patterns shift, the need for additional storage facilitiesto other markets, such as Asia. Developments in the US have also forced continues to grow. Shale gas has generated investment in liquefied naturala change in the global market for products. For many years the US was a gas (LNG) export capacity in the US and energy logistics has now becomehuge gasoline market for European refiners who exported 0.6 million bar- a major business. Evidently the need for new infrastructure is not limi-rels a day to the US. Although the US still imports some gasoline, at times ted to the US. South American crude is one of many examples; originallyduring the year, it is a net exporter and recently exports of distillate fuels, destined for export to North America, it will now need to find its waymainly diesel, have averaged more than 1.3 million barrels a day. Despite to Asia. That will require the building of port facilities and jetties able tothe faltering demand from European refiners, the demand for North Sea accommodate large, one or two million barrel ships. The challenge is likelyoil remains high. This is largely due to exports to South Korea, driven by to be a shortage of people with the right skills and expertise to managespecific provisions in a free-trade agreement between the European Union all these developments.and Korea. This has a significant impact on the price of Brent which is aglobal benchmark, and hence the overall price of oil. What role do commodity traders play in this revolution? Daily bread and butter activities, such as transporting gasoline from Eu-How is the Middle East affected? rope to the US, have diminished. When a market dries up, the people whoThe Middle East has historically exported a lot of crude to the US. Because respond quickest are usually traders because they have to constantly lookof this, many refineries were built specifically to refine heavy sour crude. for new markets and fresh opportunities. We need to reinvent ourselves allThus the crude that the US is still importing is mostly of this quality – it suits the time in order to have a competitive advantage. The export of Europeantheir refineries. Furthermore, many Middle Eastern producers have chosen gasoline to America is dead? The next challenge is to take US petroleumto discount their prices by up to 15 dollars a barrel to continue selling to the products or South American crude to Asia. US where prices are notably lower than in the rest of the world.  Interview Nicolette de Joncaire

PAGE 14. Indices | | February 2014 | Commoditiesfocus Trade finance How financing banks and commodity trading companies have reacted to the aftermaths of the crisis.Lessons learnt and recent trendsin financing commodity flows Guillaume de La Ville international trading of commodities represent modity trade finance (BNP Paribas) announced over 1 trillion dollars. end August 2013 the set up of a securitizationLGroup CFO, Milio International DMCC While commodity trading and commodity trade program called Lighthouse Trade Finance. Whi- etters of credit (“LCs”) supposedly finance industry showed an amazing resilience le the principle of gathering loans in a vehicle go back to most ancient times. They to the crisis in 2008 and in following years2, it to distribute them to capital markets investors were also heavily used during the was nevertheless a shock to the entire financing is known, it was however the first time it was XII and XIII centuries in Genoa, industry: it indeed realized that capital and liqui- done with short term corporate loans used to Venice and Florence. They howe- dity were much scarcer and expensive resour- fund commodity trade flows such as oil and me- ver became somewhat forgotten ces that than they had ever been. As explained tal shipments via vessels or through pipelines.until he 70’s. This is the time during which below, such aspects contributed to a significantMr. Christian Weyer1 realized that LCs were scale down of this financing type from the tra- Small trading companies that are suffe-a strong instrument to support and finance in- ditional liquidity providers (i.e. the large Euro- ring the most from the scale down have turnedternational trade. Contrarily to the habits, and pean Banks). Depending on the banks and the to new players as liquidity providers. Some newsimilarly to mortgage finance, he also first had businesses, it has been done in different ways: trade finance banks, whichthe idea to use the underlying physical cargo deleveraging, selling assets, closing desks… had not typically been ac- Commoditiesof commodities as collateral. Commodity Trade If we analyze the reasons of the scale down, tive in this field, have set up have becomeFinance was born. they are of two natures: both exogenous and trade finance desks. Trade a key component endogenous. finance funds such as Ga- of global trade The exogenous factors can be summarized lena, EurofinAsia, Barak with the promotionThis financing method is typically referred as follows: Fund Management Fund, of free trade and  Increased regulation such as Basel III, Dodd- Commodity Trade Invest... the acceleration Frank Act, EMIR, MiFID II, Volcker Rule to cite have also gained in size and of growth andas transactional, short term, uncommitted, safely the most obvious. attractiveness and providesecured and self-liquidating. Transactions consi-  Shortage of US Dollars and difficulty to sour- a real alternative to tradingdered for financing (which typically last from 10 ce them for European banks. companies lacking access toto 90 days) are thoroughly analyzed on a case-by-  Extremely limited interbank market due to financing banks. case basis (i.e. “transactional lost confidence. Large trading companies industrialisation financing”). Should the bank  Sovereign debt crisis, forcing most banks to continue to diversify their in developingTrade finance which not feel comfortable finan- incur huge losses. sources of liquidity. Ais supporting some cing the transaction because  Consolidation of trading companies and inte- growing number have orga- countries over of its assessment of the risks gration in the value chain. nized private placements. the last 50 years.six trillion of global involved, it will decline the  Banking industry consolidation in general and Since the crisis indeed, andcommodity trading financing (“uncommitted”). consolidation of traditional commodity trade despite i) their relatively As briefly mentioned above, finance banks in particular. high cost relative to the traditional types ofhas no choice but due to the large amounts of  Dramatic increase of commodity prices over financing, ii) the need for significant transparen-to develop creative financing required in com- the last twelve years. cy and a credit rating, private placements have parison to the equity level The endogenous factors are specific to the attracted the largest trading companies such assolutions to attract of their customer, banks ask traditional commodity trade finance mentioned Trafigura, Vitol, Mercuria, and more recentlyvital financing. for the underlying cargo of above, namely: Louis Dreyfus Commodities and Gunvor. They commodities as collateral,  Short term, i.e. ability for the banks active in – amongst others – have approached different wanting at all times to be this market to rapidly reduce their balance sheet markets, be it in US Dollars in the US or in Asia,“secured” in the transaction. Last but not least, in relation to this activity. in Euros through Eurobonds, or even in Cana-whilst the financing typically makes the pur-  Self-liquidating, i.e. no need for the banks to dian Dollars.chase and transportation of the physical cargo force reimbursements as they naturally happenby the trading company possible, the proceeds in the normal course of business. Finally, those with assets in either the ups-of the onward sale of such cargo allow for reim-  Uncommitted, i.e. no obligations for the banks tream, midstream or downstream have formedbursement of the bank’s financing arrangement to finance new transactions. alliances and sold a part of their investments to(“self liquidating”). In the current environment where prices remain strategic partners (e.g. Vitol having sold 50% ofWith the promotion of free trade and the acce- high, mostly driven by Asia, and in particular Vitol Tank Terminal to Malaysia’s national oilleration of growth and industrialisation in deve- by China, and where US shale oil and gas are company Petronas, or more recently Trafigura’sloping countries over the last 50 years, commo- shaking a long established order, let us consider sale of an additional 10% interest in its Pumadities have become a key component of global how the various market participants are respec- Energy to Sonangol, the state-owned oil com-trade. Banks which were at the origin of com- tively addressing the challenges they are facing. pany of Angola). As shown above, commoditymodity trade finance (primarily European banks) Banks that have traditionally financed this bu- finance which is supporting some six trillion ofboth increased their support to this activity and siness continue to come up with ideas and solu- global commodity trading has no choice but de-developed new financing methods in order to ad- tions, for example by favoring financing instru- velop creative solutions to attract the vital finan-dress particular needs of their customers: inven- ments such as RCF (Revolving Credit Facilities) cing it needs to source, move and distribute rawtory financing when the cargo can not be sold and borrowing bases that can be shared with materials around the globe. immediately and has to be held for some time; other banks (syndication).borrowing bases, first invented in the US in re- In a similar way, banks have for years alsolation to distribution businesses; Reserve Based used the insurance markets in order to cover a (1) Mr. Weyer was then an executive at Banque de Paris et desLending (RBL) for companies owning reserves part of their risks, hence allowing larger coun- Pays-Bas, now BNP Paribas. He can be referred as the foundersuch as oil, gas or coal and pledging such reserves terparty credit and/or country exposures for the and developer of Trade Finance worldwide.as security to raise debt, prefinance or prepay- same level of capital. As reported in AGEFI’s (2) Reading from International Chamber of Commerce’sment when money has to be sent to the supplier article dated 26/08/2013, it is also quite logical publication “Global Risks – Trade Finance 2013”, trade financebefore the cargo can be delivered, Pre-Export that the most active bank in the field of com- instruments have had a default risk of only 0.021% over the 8.1Finance (PXF) when producers need liquidity… million eligible transactions in the register (2008-2011). This isCombined, these various techniques developed an extremely low rate of default, which compares very favourablyto provide liquidity and risk management in the with the default rate for one-year corporate loans to Moody’s A1 rated companies, which is 3 times higher.

PAGE 15. Indices | | February 2014 | Commodities ||| Trade financeThe successful adjustment to a new contextCommodity Trade Finance – began initially to reduce their balance sheet, an Global Banks have also offered the larger commodityin Geneva meets the challenges operation known as «deleveraging». volumes companies the possibility of using the bond mar-of the financial environment The financing of commodity trading is largely in of commodity ket in a more systematic fashion. Banks havewith creativity and flexibility. the hands of European banks, the sources of fun- trading will evolved from creditors to intermediaries, attrac- ding of which are essentially in Euros, although continue to ting investors such as pension funds, insurance Pierre Glauser the dollar is the reference currency for the majo- grow. Trade companies and private international investors. General Manager of Crédit Agricole (Suisse) rity of natural resources flows. When these banks Finance has In the last three years, we have seen more fre- found it difficult to borrow US dollars or when been adapted, quent use in Europe of a type of structured fi-CGlobal head of commodities financing the costs became prohibitive*, they were obliged and solutions nance known as a «Borrowing Base». Widely ommodity Trade Finance (CTF) to react quickly to reduce their participation in found to used in the United States because of favourable operates in three principal areas the financing of commodity flow, and increase finance trading legal conditions (Uniform Code of Commerce), of activity: energy (oil, derivati- the cost to clients (increase of bank margins). needs. it is addressed to a larger clientele. A Borrowing ves, coal and biofuels), agricul- Banks then adapted their credit strategy to re- Base involves financing commodities trading, tural food products and metals. duce their balance sheet activities and favour off- not transaction by transaction, but as a whole, It offers an extensive range of balance sheet commitments. These represent, for an identified asset base, (stocks, letters of credit)transactional financing in the commodities sec- example, 70% of the activity of Crédit Agricole most often pledged to the banks. This type oftor, from production to processing. This short- (Suisse) SA in Geneva. Of course short term and financing can be easily shared (syndicated) amongterm funding is accorded principally in the form securitized commitments consume less capital several banks, reducing the level of risk exposureof commitments by signature (letters of credit than the long-term loans of the project financing for each participant.and guarantees) accompanied by downstream or prefinancing type, and remain privileged incash facilities. The proposed loans have the great the allocation of bank resources. The outlook is clear: with strong demandadvantage for banks of being secured by the mer- But above all, traditional trading banks have op- for commodities, global volumes of trade willchandise and directly reimbursed by the proceeds ted for models of loan distribution (syndication) continue to grow. Despite the cutbacks imposedfrom the sale of this merchandise. to banks that are smaller or do not necessarily by the debt crisis in the Eurozone and the acce-In the face of the financial crisis of 2008, which have access to the commodities sector. In the last lerated implementation of Basel III, which ren-spread from the United States to Europe, and five years we have seen a significant increase in ders these activities more costly in regulatoryto meet the requirements of Basel III as well as syndicated loans benefiting the major traders, required capital and liquidity, Trade Finance hasthe tightening constraints imposed by local bank including the introduction of corporate type fi- been continuously adapted for five years, withregulators, banks specialising in Trade Finance nancing, called Revolver Credit Facility (RCF). solutions found to finance the growing needs of– and more specifically the big European banks Better still, we have seen the banks invest tran- trading.  ches of Euros in these RCF’s, very well received moreover by lenders seeking to limit margin * For the record, the American banks, like the money market drift in dollars. funds, had practically withdrawn their dollar liquidity during the deterioration phase of the Eurozone crisis. L’intelligence économique à portée de main INDICESJanvier 2014 | Supplément mensuel du quotidien L’Agefi | N°09 | Fonds de placement bimestriel EntrEtiEn Décembre 2013 / CHF 5.50 L’économiste Hiroko SHimizu explique Carole Hubscher pourquoi les technophobies entraînent des «Nous nous battons coûts et délais réglementaires croissants. sans cesse pour pouvoir continuer de L’apUpNaIrVenEcReSdeLsUtaXbEilité produire en Suisse» Présidente de Caran d’Ache PAGE 26 LE thèmE Fonds dE pLacEmEnt Les marchés actions conditionnés pour une nouvelle année de hausse Une meilleure conjoncture et la hausse des résultats des entreprises vont relayer le soutien des banques centrales PAGE8à23 AndreAs HöFert / Vincent JuVyns / cHristinA Böck / nicolAs Pelletier / cHristoPHer MAHon / dAVid kneAle / Guido Veul didier sAint-GeorGes / FiliPPo riMA / BirGitte olsen / MicHel keuscH / JereMy WHitley / MicHAel BretscHer / tiM loVe keVin corriGAn / Vikki lindstroM / dAniel VArelA / lAurence kuBli / MAttHiAs WildHABer / nicolAs cAMPicHe / MArkus FucHs angebault.ch Les parts de fonds de placements Nécessaire philanthropie La performance historique ne représente pas un indicateur de performanceimmobiliers: le complément idéal actuelle ou future.pour apporter de la performance à un portefeuille équilibré. Performance de La Foncière au 31.12.2013 1 an: + 0.65% CréatION CONtrôLE MENtaLItéS L’originalité La BCE favorise La soumission Il est dans notre nature 3 ans: + 19.43% ne résulte pas la centralisation aux structures de vous faire progresser d’une intuition des institutions publiques relève www.lafonciere.ch 5 ans: + 55.13% soudaine politiques de l’UE du masochisme 10 ans: + 94.01% LF_AGEFIindice_281x80_NEWSP.indd 1 20.01.14 12:32 365 jours Mensuel 6 parutions 7 parutions 24h / 24h Encarté dans L’Agefi Kiosque / Abonnement Kiosque / AbonnementSWISS BANKING | FINANCE | SERVICES | INDUSTRIE | HIGH TECH | IT | ENTREPRISE | COMMERCE | AUTOMOBILESLUXE | TRADING | COMMODITIES | ENERGIES | FORMATION | HAUTES ÉCOLES | MANAGEMENT | RESSOURCESHUMAINES | MARKETING | LIBÉRALISME | POLITIQUE ÉCONOMIQUE | www.agefi.com/abo www.agefi.com SITE DE L'AGENCE ÉCONOMIQUE ET FINANCIÈRE À GENÈVE

PAGE 16. Indices | | February 2014 | Commodities ||| Trade financeTrade Finance funds: a solutionfor traders and investorsTrade Finance Funds as an duration trade finance assets appeared as a quick global trade ment-owned companies and transact recurringalternative investment solve two and easy solution to banks in need of balance- value grew flows rather than spot deals. They arrange se-issues by financing commodities sheet deleveraging. sixfold in cured financing, tightly controlling physicaltrade flows while delivering As commodity prices are more transparent and agro-products goods and cash-flows. Accordingly, funds deeplyuncorrelated absolute return. fixed assets expensive, traders tend to rely on and fifteenfold understand their clients’ business, carrying well strong logistics and short term funding to main- in fuels and identified and mitigated exposure, allocated Nicolas Sanchez tain their niches and margins. However, small mining Over the within a portfolio of diversified countries, Partner and Board Member and medium enterprises are seldom able to issue past 20 years. commodities and financing schemes. Funds’ fixed income instruments or securitise receiva- managers generally operate under a regulator,OEuroFin Asia Swiss ble. They may raise suppliers’ credit or turn to are subject to independent audits and third party ver the past 20 years, global smaller banks which provide some relief, albeit custody of assets. trade value grew sixfold in at a higher cost. To collect sales proceeds and issue pay- agro-products and fifteen- To bridge those gaps, a few trade finance ment instruments (e.g. Documentary Credits), fold in fuels and mining. The funds developed, specialized each in its own geo- borrowers need a bank account, evidencing amount needed to finance a graphy. They provide liquidity within a range of the complementary role of trade finance funds cargo of wheat tripled, it qua- interesting alternatives: transactional facilities;drupled for copper and sextupled in the case of financing part of the 10-20% cash collateral A few trade finance fundscrude oil. pledged by borrowers to banks; participating have developed to bridge theMeanwhile, banks merged and – in view to syndicated credits; purchasing receivable or gaps. Each one specializesof risk concentration limits – one plus one did loans on the secondary market. in its own geography.not make two credit facilities. With the financial Traders’ satisfaction is embedded in trade financecrisis, US dollars became scarce and costly for funds’ mandate and business model: to provide which provide alternative liquidity to bothEuropean banks which represent a majority of risk-adjusted return with low volatility to their traders and banks, enabling commodities flowstrade finance providers. Consequently, short investors, they cannot sit on cash but must grant and delivering a well-performing asset class to and execute efficiently a wide range of credit their investors.  solutions, exclusively financing physical flows of commodities. Trade finance funds lend mostly to manage-

PAGE 17. Indices | | February 2014 | Commodities ||| Trade financeAn innovative approach to addressthe new challenges in financing tradeMore banks are interested facility at US$1.76 billion, over $500 million The ability the Singapore and Dublin bonds were signifi-in sustaining trading flows and higher than the initial launch estimate. Impor- of a privately cantly oversubscribed, showing strong supportnew forms of finance develop tantly, the company launched a Chinese Yuan owned company for a diversified funding strategy.to support the acquisition funded facility, which led to seven new banks to raise equity A final financial innovation involves pre-paymentof physical assets. joining the facility and significantly increased is limited. It will of suppliers against future supplies of products. the participation of Taiwanese banks. be essential This service can greatly assist commodity produ- Christophe Salmon As trading operations and credit facilities conti- for commodity cers in remote parts of the world, for example, Chief financial officer for Europe nue to be expanded, it is anticipated that more merchants to who would otherwise struggle to attract finance banks around the world will become interested remain at the from international banks. Alternatively, otherFthe Middle East and Africa,Trafigura in supporting such business model. forefront businesses find pre-payment arrangements at- or many years, the main interna- Running in parallel with the global expansion of of developing tractive because they help to diversify their sour- tional commodities traders had the the traditional funding arrangements, new forms innovative ces of funding. same short term financing needs of finance have recently begun to be developed. financial to run their day to day operations. This change has arisen from a natural progres- arrangements. A good example involves Trafigura’s agree- This uniformity has been changing sion in the role of international trader, towards ment with Russian oil producer Rosneft. In more recently, as some compa- acquiring interests in physical assets. In support September 2013, a $1.5 billion pre-paymentnies are developing fresh ways to support their of the core trading activities, significant invest- to Rosneft was closed in return for receivinggrowing business interests and responsibilities. ments in infrastructure such as warehouses, tank 10 million tons of oil products over a five yearTrading companies usually relied on agreeing farms and other industrial assets have been made. period. This deal was the largest of its kindvarious short-term credit arrangements provided These help eliminate logistical bottlenecks andby groups of banks. These are known as self-li- improve the service offered to customers. Pre-payment of suppliersquidating financing and revolving credit facili- However, financing acquisitions requires a fresh against future supplies canties and typically provide funds for anywhere approach. For a privately-owned company, there greatly assist commoditybetween one to three years. is a limited ability to raise equity. Short-term re- producers in remote partsThe use of revolving credit facilities and short volving credit arrangements are unsuitable for of the world.term secured financing support the day-to-day funding assets. In addition, for a variety of regu-global trading activities, moving oil and metals latory and liquidity reasons, many banks are less involving our company and similar arrange-cargoes around the world to meet our customers’ willing to provide long-term debt finance, which ments with other companies are foreseen asparticular product requirements and delivery has led us to developing new alternatives. global operations continue growing.deadlines. Since the 2008 financial crisis, there As an illustration, Trafigura issued in April 2013 Looking ahead, although global economic pros-has been a geographical shift in the composition a perpetual bond, corresponding to a hybrid secu- pects appear encouraging, traders face a varietyof banking groups which support revolving cre- rity which has debt features but qualifies as equi- of challenges. Providing additional services anddit arrangements. Faced with difficult situations ty on the balance sheet. After attracting strong support to suppliers and customers is key, to-within their home markets, European banks interest from institutional investors and private gether with making continued investments inencountered liquidity problems and contribu- banks, the raise of US$500 million has been infrastructure projects that improve the flow ofted less funds, leaving Asia-Pacific and, latterly, achieved with such perpetual bond in Singapore. vital materials around the world.American financial institutions to assume greater Since then, a EUR200 million private bond with As a result, it will be essential for commodityroles.As an example, in October 2013, Trafigura a single investor has been arranged, followed by merchants to remain at the forefront of deve-renewed its Asian revolving credit and term loan a EUR500 million Eurobond, which is listed on loping innovative financial arrangements in the Dublin stock exchange. order to meet the ever-changing needs of ever- The proceeds from all of these bonds supports growing markets.  long-term growth plans, while enhancing the overall credit standing with investors. As seen with the recent revolving credit facilities, bothThe surge in trading credit funds in 2013Investment funds offer At the end of 2008 the imposition of credit It now costs As a result, since 2010 there has been an upsurgeattractive alternative solutions ratings for the banks to define capital adequacy a bank seven of trading credit solutions provided by playersto banks’ facilities. Notably had a devastating effect. times less other than the banks, notably the launching ofthose vehicles that have Indeed, with Basel II, it costs banks seven times capital to lend several investment funds specialising in tradingspecialised in trading credit. less capital to lend to a heavyweight such as BP, to a heavyweight credit. by virtue of a Standard & Poors credit rating su- such as BP While it is regrettable to note that this new gene- Philippe Steiner perior or equivalent to AA- (credit risk weighted than to a small ration of funds is developing outside the walls of Federal expert on banking economics by a factor of 20%) than to a small niche trader niche trader. our beautiful Geneva (particularly in Singapore with the handicap of being established or opera- and London), and this because of a certain lackUManaging Partner, Commodity Trade Invest ting in a country considered at risk and handed a of enthusiasm on the part of the Swiss financial p until 2008, the complete ran- B+, and branded with a credit risk weighting of community, Geneva nevertheless enjoys an ex- ge of financing needs for com- at least 150%. pertise recognised as unequalled in this field. It modities trading could be met You can imagine the consequences for the profi- is within this framework that favourable deve- by the banks specialising in the tability level of the bank’s trading activities based sector in Geneva, for start-ups on a ratio called RAROC («Risk Adjusted Return It is to be hoped that 2014 as well as for major players on Capital»), when a large part of its clientele will see the support of oursuch as Vitol, Mercuria and Trafigura. consists of this type of niche player. Certain authorities to maintain ourThis competitive advantage of our financial results were simply halved. leadership in global trading.centre was possible thanks to an innovative After 2009, banks were therefore compelled tofinancing method known as transactional finan- progressively make drastic adjustments to the lopments are taking off, with ambitious projectsce, introduced by Christian Weyer in the 1970s. criteria for entering business relations with this such as the finance fund for the trading of steamIn this new approach the credit decision depen- type of clientele: coal (currently being launched).ded more on the quality and soundness of the  Client base of equity capital over 5 million It is to be hoped that 2014 will bring the supportsecurities credits obtained by the financed cargo francs. and consideration of our authorities to defend(pledge on the merchandise, assignment of the  Annual credit revenues over 250.000 francs. our financial sector and enable us to conserveresale products) than on the financial base (equi-  Opportunities for cross business with other our premier place in global trading, the resultty) of the borrower. bank activities, such as wealth management, or of so many years of innovation and competiti- currency/commodities derivatives... veness.  The corollary is that an entire segment of clien- tele, the small and mid-size trading companies, have had to turn to alternative credit solutions.

PAGE 18. Indices | | February 2014 | Commodities ||| Trade finance InterviewAlexander Karrer | SFI«Dialogue between the federal authoritiesand traders has become very intense »T he State Secretariat for International Financial panies and governments. Other inter- Matters (SIF) seeks to national companies like Nestlé aren’t strengthen Switzerland’s subject to such accounting rules. position on the interna- tional scene in the fields Can Switzerland act alone to regulate trade?of finance and taxation. Head of the No, we can‘t act alone. For these ru-Multilateral Affairs Division since les to be effective, they must be har-2009, Alexander Karrer has been given monized at international level andthe task of defending the interests of implemented by all major financialSwitzerland in relation to the Interna- centres to ensure equal treatmenttional Monetary Fund and the Financial (a level playing field) for all.Stability Board. So the multilateral route is preferred?How long has the Federal Department Yes, clearly. We’re very active in theof Finance been interested in the trading development of international tradingsector? standards. In 2013 we participated inSince 2009 or so, when the sector beca- several G20 initiatives: for example,me the subject of international debate. we helped improve the transparencyFollowing the economic crisis, the need of the international gas and oil data-for standards became evident. The aim base. At the financial level, we par-was principally to define general rules ticipated in the development of newfor trading, of which funding is an in- international rules on OTC derivati-tegral part. However, the issue of regu- ves and we’re in the process of trans-lation of the sector doesn’t only concern posing a good number of these rules.the Finance Department, but also the We also have considerably advancedDepartment of the Economy and the legislative projects regarding theForeign Ministry. fight against money laundering.In April 2012, you said at the FT Global Do you think enough is being done toCommodities Summit that you were confi- regulate OTC exchanges?dent Switzerland would remain an excellent The Financial Stability Forum’slocation for trading activities. Is this still international standards seem ade-the case today? Alexander Karrer. Deputy State Secretary in the State quate to me. The basic rule is that Secretariat for International Finance (SFI) and Head all OTC financial transactions goYes, we’re still confident. Trading is a of Multilateral Affairs Division.traditional activity in Switzerland, da- 1981 BA in Political Science from the Institut Universitaire des Hautes Etudes through a clearing house and are re-ting back to the 19th century. Although Internationales de Genève. gistered in a database. Some excep-competition between international mar- 1992 Transferred to Tokyo, worked for the Swiss Embassy as an advisor tions are provided for compensationkets is tough, we maintain a significant on economic and financial issues. if there is no standardized contractcompetitive advantage, which stems 1996 Personal assistant to the Head of the Federal Department of Finance. for a given commodity or if a non-directly from our past. A real hub en- 2002 Appointed by the Federal Council as Ambassador and Head of the financial counterpart is concerned.compassing all activities related to tra- Division of International financial and Monetary Policy of the Federal It’s important that the rules adapt toding has indeed developed in Switzer- Finance Administration. market realities. In Switzerland weland. Moreover, the Federal Council 2009 Elected by the Federal Council as Deputy State Secretary in the State opened the consultation on the Fede-has been very clear on the fact that the Secretariat for International Finance (SIF). ral Act on financial infrastructure onframework should remain favourable, December 13th. It should be submit-while maintaining strict requirements ted to Parliament next summer.for integrity and transparency. Is the objective of transparent and socially responsible trading realistic?On that occasion you urged traders to engage in a dialogue with the authorities Yes, we can improve transparency of both financial and physical flows,and more generally with the public to explain their profession. Did they hear you? and promote the application of rules of good governance. But again,Yes, very clearly. GTSA is much more active than before. This allows us to Switzerland can’t do anything alone. It’s essential to support all internatio-have a constructive and ongoing dialogue with members of the association. nal initiatives in this direction and take part in their development. WhatThey’ve understood it was in their interest to express their opinion as part we’re seeing at the moment is moving in this direction, beyond mereof consultations on various bills. I also think they now have a real commit- declarations of good will.ment to openness, which allows them to communicate more adequatelythan before. Is the reform of corporate taxation presented last December by the Federal Council going in the right direction for the trading sector?Are you in contact with other interested parties? Yes, because it defines clear objectives. These involve maintaining favou-Yes, two years ago we set up a forum for discussion of all matters related to rable conditions for Swiss and foreign companies, adapting tax systems totrading, right at the heart of the federal government. The baseline report conform to international standards, and finally limiting the financial conse-published last March also recommends developing contacts among all the quences of this reform for the Swiss confederation and cantons. To replaceorganizations involved. The last dialogue day took place in Berne recently. the current regimes, a general decrease of tax rates is the most appropriateWe’ll be talking, on the one hand with companies in the sector, and on the measure for the trading industry.other with NGOs. The cantons also take part in these discussions. Does the success of the Swiss trading hub depend on the success of tax reform?Do you aim to regulate the sector in a specific way? Of course, the tax factor is important for the companies’ choices, but asNo, our approach is not sectoral. We always reason by taking into account I’ve already said, Switzerland has other strengths. Besides, if you compareall companies, Swiss and foreign, to ensure good over-all governance. the current tax rate (11.5% on average for trading), it’s clear that someWe make sure the integrity of the commercial sector is ensured, because locations abroad offer more attractive rates than Geneva or Zug. I thereforea disruption of trade would have serious repercussions on the economy. think we have some leeway on the tax front as the rest of the frameworkWe also believe it’s important to improve transparency in certain markets. remains strong.The purpose of all this is certainly not to make life more difficult fortraders, but to ensure that the sector doesn’t have any problems of Do you think traders are more concerned about the deterioration of fiscal condi-financial stability or reputation. tions or of transparency requirements that may appear in the future? It’s difficult to answer this question. The choice of a location is multifac-You don’t discuss specific rules? torial for any multinational company. The quality of the infrastructure,One of the only initiatives specific to this sector concerns the analysis of the the school system, transport and the labour market are inherent advantagesaccounting rules of these companies. The Federal Department of Justice is of Switzerland. Care must therefore be taken to preserve them, strengthenworking on this issue to determine whether it’s possible to impose accoun- them even. ting systems country by country according to financial flow between com-  Interview Olivier Pellegrinelli

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PAGE 20. Indices | | February 2014 | Commoditiesfocus Ethics and transparency The Head of the Commodities Unit at UNCTAD envisions the collaborative development of a new business model for the sector that ensures an equitable distribution of value.The evolving commodity tradinggovernance architecture Samuel K. Gayi modity trading sector on a firmer long-term the traders who have expressed a willingness to Head, Special Unit on Commodities, United footing. Indeed, recent statements from promi- open up might find the process daunting, onceTNations Conference on Trade and Development nent members of the trading community, as well it is underway. Thus a collaborative approach is he building momentum for go- as a recent postulate by the Swiss government, essential to succeed in the development of a new vernance reform in the interna- strengthen the prospect for shared dialogue on commodities governance architecture. tional commodity trading sector reform. The first step to engage all stakeholders in the re- represents a promising opportu- Geneva is the ideal site for the design of the form process is to ensure a neutral platform, free nity. Part of this momentum de- new commodities governance architecture, as it from the tensions that can exist among compe- rives from the repercussions of is the home of major industry players and UNC- titors, as well as between industry, its regulatorsrecent reforms in related sectors. The banking, TAD, whose mandate straddles the intersection and civil society. Consensus building is one ofderivatives and extractive sectors are all subject of trade and development. Within UNCTAD’s the three pillars of UNCTAD’s work – researchto new regulations, each with implications for wider commitment to “development-centered and analysis and technical cooperation are thegovernance and business models in the trading globalization”, the production and trade of com- other two. Therefore UNCTAD can facilitatesector. An added lesson from the experience of modities flows through Global Value Chains an inclusive, multi-stakeholder reform process these related sectors is that (GVCs). Instead of the inward-looking, cost-cu- by providing facilities, support services andThe prerequisite the private sector typically tting perspective of a corporate «supply chain,» expertise.disclosure of physical resisted the pull of reform, the GVC concept emphasizes a global governan- only to have it imposed on ce of the chain, with public and private actors Once the process is underway, research andfinancial and informa- them by regulators. interacting to shape the governance parameters analysis function can help the stakeholders iden-tional flows may that determine the value drawn by stakeholders tify and evaluate policy options to fulfill agreed-be contentious for From its seat in Geneva, a throughout the chain. Perhaps more contentious upon objectives. Next, its technical cooperationthe trading sector. global commodity trading for the trading sector, than the eventual insti- function will engage once implementation be-A collaborative hub, UNCTAD sees the po- tutional and regulatory shape of the emerging gins. Typical projects for the institution in thisapproach is essential. tential for reform in the tra- commodities governance architecture, will be the area involve building capacity and infrastructure ding sector to proceed with prerequisite disclosure of the sector’s physical, that empower developing country actors to draw more collaboration between financial and informational flows. The trading full value from their participation in commodi- industry, regulators and sector has a long tradition of discretion in com- ties markets. But its cooperation projects are cus- other stakeholders. Clearly mercial transactions because of the nature of the tomized by context, so it has first to define with commodities governance service provided, which makes it easily accessible the stakeholders how all participants can receivereform demands fundamental and potentially to competitors. This will certainly need to evolve an equitable value from the new commodity tra-contentious changes: more disclosure, more re- for effective governance to take root. It is simply ding architecture. In all these ways, UNCTAD’sgulation and a greater share of value-added for impossible to formulate efficient regulations and expertise and services can contribute to a succes-resource owners in developing countries. Never- ensure their fair application across a competitive sful, collaborative and dynamic evolution of thetheless, more equitable, transparent governance marketplace, without a detailed visibility of the commodities sector for the benefit of all the sta-architecture, designed through a collaborative, underlying transactions. keholders. consensus-based approach, will stand the com- Implementing transparent business practi- ces and a culture of openness is challenging. Even * This article is written in a personal capacity and should not in any way be attributed to the UNCTAD Secretariat or to its Secretary General.ACADEMIC PROGRAMS IN COMMODITY TRADING A UNIQUE OPPORTUNITY TO LINK THE ACADEMIC AND PROFESSIONAL WORLD Master of Arts in International Trading, Commodity Finance and Shipping This innovative academic program for young students with a Bachelor Degree is conducted to best fit in with the demands of working while studying www.tradingmaster.ch Diploma of Advanced Studies in Commodity Trading The Executive Diploma of Advanced Studies in Commodity Trading provides professionals with a strong and thorough program of study www.commoditytrading.ch

PAGE 21. Indices | | February 2014 | Commodities ||| ETHICS AND TRANSPARENCY InterviewClaude Wild | FDFA«Progress is achieved through the cooperationand collaboration of stakeholders »T he report of the interdepart- mental platform on commo- believe that we will reach tangible results dities to the Federal Council faster than by imposing national standards, last March was the first of its especially as this approach complements kind. Three federal depart- existing international conventions. Never- theless, companies need to understand that ments cooperated to provide the status quo is not an option.a complete snapshot of the commodities sec-tor because of the importance of the industry What would such a corporate code of conductto Swiss economic, tax and foreign affairs. entail?Within the government, Ambassador Claude This code – or norms or guidelines – couldWild, head of the Human Security Division, be conceptually similar to the InternationalHuman Security of the Federal Department Code of Conduct for private security ser-of Foreign Affairs (FDFA), is the champion vice providers, signed by over 700 compa-for peace, human rights and security, which nies. But it would need to be adapted to theare themes embedded in the Federal Consti- specific requirements of the commodity tra-tution. He explains why the Swiss govern- ding sector. Commodity trading companiesment has taken a holistic approach to the – not to confuse with the extractive industryissue and updates us on the progress already – must integrate a socially responsible mo-made by his division vis-à-vis the report’s dus operandi in the conduct of their busi-recommendations that fall under his respon- ness and contribute to the development andsibility. welfare of people in the areas where they operate, without seeking to take advantageYour Excellency, why a tripartite government of the weakness of some states. The CSRapproach? paradigm goes beyond the strictly legal pa-Historically, issues related to commodi- radigm. Companies’ behaviour should notties were invariably tackled independently. Claude Wild, Ambassador, Head of the differ depending on where they operateBusiness development is the responsibility Human Security Division, Federal Department – whether in Norway or for example in Ni-of the Federal Department of Economic of Foreign Affairs (FDFA). geria – because they cannot turn a blind eyeAffairs, Education and Research (EAER), tax 1984-89 Political sciences and international relations (IUHEI, Genève). on the conditions under which commodi-affairs belong to the Federal Department of 1989-92 Officer of UN military contingent in Namibia. Joins ties are produced. Moreover, it would be anFinance (FDF) and human rights issues to the diplomatic service. Posted to Nigeria and Austria. unacceptable paradox that Switzerland as athe FDFA. But the governance of this sec- 1997 First Secretary then Counselor at the Embassy in Moscow. state should have to repair, through foreigntor has multiple aspects especially when ta- 2000-10 Head of Mission with the rank of Minister to the EU. aid, damage caused abroad by companiesking into consideration the national and in- Participates to negotiation of bilateral agreements. based in Switzerland operating in vulnera-ternational significance of the commodities 2010 Ambassador, Head of the Human Security Division, FDFA. ble areas without appropriate CSR rules. Tobusiness and its tight coupling with corpora- move forward, we want the cooperation ofte social responsibility. The interdependence business partners who must convince them-between economics and human rights is crucial when players established selves that preventive action is more effective than provisioning large sumsin Switzerland happen to play a leading role in particularly sensitive areas, of money in order to repair potential damage. Something that John Ruggiewhich applies to mining companies but also trading companies. The stra- has demonstrated.tegic importance of commodities exchanged from Switzerland must beemphasized. For the record, 70% of Russian oil is traded in Switzerland One of the concluding recommendations of the report aims to intensifyand over 3.5% of total GDP is generated by the commodities sector, a the dialogue between the economic and social partners. How is this dialoguepercentage that exceeds that of tourism. It is the duty of the government to moving forward?provide national prosperity but the defense of peace and human rights are Federal departments are partnering with the industry, NGOs and the can-also a central theme of the Swiss foreign affairs policy as stated in Article tons and we have therefore conducted workshops with industry represen-54 of our Constitution. In addition, it is important to address this issue at tatives, including GTSA, and initiated dialogue with NGOs. We will ap-an international level and not on the basis of Swiss law alone in order to proach the cantonal authorities last. The first phase is to map the existingavoid the pitfalls encountered in other sectors. landscape and to understand the perception of shortcomings and strengths of the stakeholders.What is the framework of your approach?We are working under the United Nations Guiding Principles on Busi- What is the stage of completion on setting CSR standards as recommended inness and Human Rights set by John Ruggie, ex-UN Special Representative the report?for Business and Human Rights, and endorsed by the UN Human Rights We are making progress on the basis of existing standards here in Switzer-Council in 2011 in Geneva. The Ruggie principles are a response to the land as well as in the United States and in the European Union. But thesepast failure of State practice to enforce existing laws that directly or in- standards are still very young. The joint process of reflection is based on adirectly regulate business respect for human rights. They form a flexible series of themes addressed in a study that we commissioned to the Ethicsframework to guide participants in fulfilling their commitment to respect Institute of the University of St. Gallen on the state of play in the commo-human rights and champion a corporate culture which integrates these dity trading sector.rights in long-term strategic choices. They reassess states’ existing obliga-tions to respect, protect and fulfil human rights and fundamental freedoms, Based on the results of a comparative study of other legal regimes, a review isthe role of business enterprises as specialised organs of society performing also to be conducted to determine whether the international legal environmentspecialised functions, required to comply with all applicable laws and to is such that there is a need for Switzerland to take legislative action.respect human rights and the need for rights and obligations to be mat- This study has been completed. It was designed as a comparative lawched to appropriate and effective remedies when breached. They promote report. The Federal Council will soon decide on the follow-up proposala smart mix of measures – mandatory and voluntary – to foster business made by the Federal Department of Justice and Police and the Federalrespect for human rights. Department of Foreign Affairs.How do you intend to apply these principles? What efforts have been made by the authorities to better inform the public?There are two ways forward. One is through the enactment of laws. Presently our mission is to do rather than to inform. However, we areHowever, the legislative process is long and complex and the judicial pro- always available to answer questions from citizens, from the media andcess can prove endlessly fragmented and complicated, particularly when from members of parliament, when they arise during parliamentary de-it relates to offenses committed outside Swiss territory. It is difficult to bates, as well as those of all economic and social stakeholders. Not to men-implement. See what happened to the provisions of the Dodd-Frank Act tion that we respond positively to invitations to participate in panels atregarding the disclosure of payments to foreign governments in the ex- conferences and forums.tractive industries which were suspended following an appeal of the in-dustry in the United States. The other way forward – more aligned to the What is the next big step?Swiss political culture – is for example to establish a code of conduct withthe buy-in of all stakeholders. We are not looking to raise regulatory bar- A report on the progress of the 17 recommendations listed in the report pu-riers but to convince companies of the inevitability of socially responsible blished on the 27th of March 2013 will be sent to the Federal Council. behaviour through a participatory and credible partnership because we  Interview Nicolette de Joncaire

PAGE 22. Indices | | February 2014 | Commodities ||| ETHICS AND TRANSPARENCY InterviewDavid Rosenberg | Ecom Agroindustrial«Sustainability is a key survival issue forfoodstuffs merchants. Not an option.»R amon Esteve and David Rosenberg of ECOM IFC or the IDB and join forces with Agroindustrial believe NGOs, particularly in training. One key is that sustainability is a key to identify real financing solutions. Micro- survival issue for foods- finance works well in urban areas but less tuffs merchants. Long so in the rural world where the cycles are longer, sometimes up to eight years whenterm engagement with producers means we talk about replanting trees. Buildingeverything to a company specialized in a sustainable model is not something thatbringing coffee, cocoa – and to a lesser you can do alone and there is no future formeasure cotton – from developing re- an island of sustainability in an ocean ofgions to international brands because far- poverty. An isolated investment, no mattermers’ viability is the only way to guaranty how high it may be, is just that… isolated.long term supply and quality. It is important to convey the importance of a healthy, long term, dedicated supplyIs your approach akin to CSR? chain at the brand level. Producers’ loyal-Our approach is not simply about corpora- ty is the driving force behind stable supplyte social responsibility and even less about and can only be obtained when all stake-philanthropy. In our case, sustainability is holders are on board. How coffee or cocoaa requirement, not an option. We want to is produced and where it comes from hasdeliver coffee next year and the year after. to matter to consumers.This means that our own sustainability isbased on long lasting relationships with Does traceability add complexity?coffee and cocoa producers. One has to be Traceability is not a complication, it is anvery smart to survive by flipping bills of opportunity. If you are fully committed,lading alone. We are not that smart and traceability becomes an asset once it ishave to rely on creating value in the broa- part of the way you do business.der supply chain. Commoditization is animpersonal way of doing business where Where are your most successful projects?people do not matter. On the other hand, In Kenya because the country has a goodour business is about de-commoditiza- rule of law, excellent cooperative laws,tion, not just about price. Who is growing well-trained agronomists and highly desi-what – and where – is relevant to us be- reable coffee. Some other countries offercause we run local businesses with local David Rosenberg. Group Sustainability Advisor no infrastructure and no legal framework.people and local assets in producing coun- Ecom Agroindustrial Corp. Switzerland Each country is unique. Projects are hu-tries and need to offer the highest price 1982-1986 Bachelor Civil Engineering Princeton University. gely diverse and success is not necessarilyto producers to retain their loyalty. Far- 1989-1992 White Water rafting and kayaking guide, Costa Rica. Founded transferable.mer revenue cannot be improved without NGO «Pro Rios» to protect Costa Rican Rivers.better yields, by improving agricultural 1992-1993 Master Energy and Environmental Studies Boston University. How do you operate in Kenya?practices, farmers’ education, their health. 1997-2003 Director Corporate Social Responsibility, Royal Ahold (super- On the commercial side, we work withThe future of trading belongs to mer- markets), The Netherlands. the cooperatives on renewable contractschants and not to mere traders who bring 2003-2007 Executive Director UTZ Certified, The Netherlands. which can be cancelled by the coops eve-no added value. 2008-present Group Sustainability, Ecom Agroindsutrial Corp., Switzerland. ry year. On the training side, we have a number of agronomists who train leadWhy is this approach indispensable? farmers who, in turn, train their peers.Production failure leads to scarcity, rationing and volatility. Our business The ratio of agronomists to farmers is approximately 1 to 100 on average.is to ensure long term supply, security and stability. We work with 250,000 farmers of which 80,000 are registered with us. The basic training involves good agricultural practices including pruning,How does it work? mulching, soil management, harvesting and post-harvest handling. It takesOur first principle is to take a long view with farmers. One year contracts producers on the path to certification which is not the end game but a firstare insufficient to ensure farmers’ and crops’ development so our interest step, an evaluation tool. 20% of coffee sales at Ecom are certified but ais to engage on a 3 to 5 years basis. One needs to remember that the rural higher percentage still is bought from certified farmers. At a later stage, wepopulation in developing countries is aging fast. Farming is not an attracti- also teach more advanced practices targeted at improving yield further.ve lifestyle and younger generations leave for less demanding ways of life.Who wants to continue? A long term engagement on our side gives produ- What do you mean by advanced practices?cers time to improve yields and increase their income. But our engagement In Kenya, farmers usually breed two cows. Through collaborative workis not purely commercial; we also invest considerable efforts in education with local NGOs, we teach them to compost cows’ manure to increase– agronomy training – which is a long term endeavour but bears tangi- coffee yield and improve quality. They also capture biogas from theble fruit. After about 3 years of engaging with us, farmers’ productivity compost heap as a by-product with simple devices and use it for cooking.increases by 30% on average. Do you have other examples?How large is the challenge? We have a very strong model covering production, distribution and trai-It is a huge challenge. Farmers’ plots are tiny, sometimes as small as half ning, in Nicaragua, Honduras and Guatemala and work with about 100,000a hectare to two hectares, which implies engaging with thousands of pro- farmers in those countries. To fight the epidemic of «rust» (a fungus thatducers. We sometimes commit to a relationship for two bags of coffee at kills the leaves of the coffee plant) that has affected between 10 and 30%the end of the year. As we trade eleven million bags each year, you can of coffee crops through Central America since 2012, we have invested ineasily compute the number of relationships that need to be created and research with CIRAD* to identify and produce improved hybrid varietiesnurtured. – which have proved so far to be more resistant than conventioal varieties. We are propagating and distributing millions of seedlings to farmers.Where are the biggest risks?The training infrastructure that we build is not physical as it would be if You work with IDH, the Dutch sustainable trade initiative. Why not directly withwe invested in plantations or industrial assets. We are building a capacity the Swiss authorities?that does not automatically come back to us. Trained farmers can even- The Swiss government has chosen to work with existing successful institu-tually choose to sell to someone else as loyalty built over many years may tions like the IFC or institutions such as IDH (the Dutch Trade Initiative).be broken in a single day. That is without mentioning political turmoil as In any case, there is no need to duplicate platforms and IDH is doing aexperienced in Ivory Coast for instance. And our clients may also turn to fantastic job. The Swiss have recognized that there is value in workingother suppliers. pan-European or globally rather than on their own. How do you mitigate those risks? *A French research centre based in Montpellier working with developing countries to tackle interna- tional agricultural and development issues.It would be folly to do it on our own. We collaborate with public authori-ties and work with the major brands to build a model that builds increased  Interview Nicolette de Joncaireresilience of farmers. We also work with development banks such as the



PAGE 24. Indices | | February 2014 | CommoditiesFocus a GUIDE TO careersCommodity trading: a business with many facesGeneva is an international several experts to minimise the operational and A widespread regulators, especially when some of them setcommodity trading hub. financial risks at each stage of the voyage of the cliché is that conflicting rules. Sustainability is another topicBut the industry and its goods. Recently, these tasks have become more traders work of growing importance to the industry as theemployment opportunities complex and specialised, making it very difficult behind screens. actors become increasingly aware of their socialare still little known among to learn on the job, as was commonly the case up With a phone and environmental impact. IT systems expand,the general public. to the early 2000s. stuck to not only to help manage business risks, but also Globalisation has led many compa- each ear. to support human resources departments as they Franca Tufo nies to open offices abroad, offering attractive respond to complex globalised business issues. career opportunities to young people. Before Companies employ people not only capable ofAHead hunter, TBS Human Resources & Services occupying any position in this industry, a strong using these powerful IT tools, but also able to widespread cliché regarding tra- basic education is required, as well as proficien- design them. ders is that they work in front cy in English, the language par excellence of of screens, a phone stuck to each commodity trading. The tasks required have ear. It is rarely acknowledged The commodity trading sector constantly seeks become more complex and that traders are only one of the new talent with specific profiles. However, it is specialised making it very links in a long chain, and that often difficult to enter it, as is the case for many difficult to learn on the job.many people with different profiles work around industries. Several well known educational pro-them. Without teamwork, nothing would be pos- grammes enable companies to save precious The graphics below indicate key positions in asible. Moving cargo from a producing country to training time, and allow participants to discover trading house, providing a view of what a widea consuming one requires the participation of new career paths. range of career opportunities is on offer. Other In the aftermath of the financial crisis, new professions exist and still more will emerge as international regulations have been implemen- the commodity trading industry constantly ted and new positions created within commo- adapts to its evolving environment.  dity trading houses to ensure compliance. It is not always easy to comply with 70 differentCommodity Trading: a combination of expertise Analyst Execution / Operation Vessel Operator Coordinator Shipping Manager Human Resources Business Developer FROM DEALING TO Communication DELIVERY Officer Senior / Junior Trader The energy of a whole team Administrative Assistant Technical Experts Accountant(Agronomist, Meteorologist, Blender…) Business Controller IT Manager & Team Treasurer Lawyer Risk Manager Finance Manager Compliance Officer Credit Risk Officer CSR - Sustainability Officer

PAGE 25. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERSThe role of a Coal market analysiscommodity trader Gaining a privileged view of the economy Maha Daoudi to arrange road, rail and ocean transport Fabio Gabrieli the theoretical and quantitative, analytical Head of copper concentrates between two continents. Then you must Director, Dry Bulk Analysis models with, sometimes priceless, qualita- Trafigura handle multiple legal, regulatory and and Strategy, Mercuria tive insightful feedback. government requirements while arranging Due to the enormous amount of data theAhead for numbers, combined with a financing agreements. And, all the time, When talking about the analytical analyst is regularly exposed to, numerical strong team ethic and the ability to you’re keeping a close eye on many other role in the commodity envi- proficiency is highly recommended. There- process multiple sources of informa- factors that may affect your plans, such ronment, we normally refer to fore, a degree in a quantitative disciplinetion from around the world before making as global weather patterns, international fundamental analysis (that defers from would be advantageous.reasoned business decisions. Combine trade routes and political developments. the so-called technical analysis, which is Within the commodity domain, coal un-all these qualities together and you may Whatever happens, the suppliers and buyer a method of predicting price direction by doubtedly offers a privileged sit, where tohave what it takes to become a successful are relying on us to ensure that the cargo analyzing statistics generated by market monitor economic developments from. Thecommodities trader. I work for Trafigura’s arrives on time. Imagine that scenario activity, such as price and volume traded), coal analyst gains full exposure to at leastcopper trading division. Although I am occurring simultaneously between many i.e. to a mean of predicting price direc- two macro groups: energy and industrialbased in Geneva, my job frequently takes other locations all over the world, and you tion of a commodity based on supply and commodities.me to Africa, Australia and North America, can perhaps understand how challenging demand fundamentals. Supply and demand Although coal is mainly used as a fuelas well as multiple locations across Europe a trader’s job can be. I spend around one- will rarely be balanced. And the regular for power generation, it is also a crucialbecause the modern world relies on cop- third of my time out of my Geneva office imbalances (surplus or deficit conditions), feedstock in steel making. Therefore, coalper. Without it, we’d have no telephones visiting mines, foundries, ports and wa- at any certain price level, will generate doesn’t only compete with gas and otheror electrical equipment and international rehouses. I have to see things for myself, arbitrage opportunities, which will even- fuels for power generation, but it is alsotransport networks would cease to func- pick up information on the ground and tually lead to relative and/or absolute affected by the industrial activity due totion. My team acts as a vital link between learn from our business partners price movements. The acute analyst will associated changes in power demand andcopper mines, often in remote locations, on a regular basis. You can’t always make concentrate most of the attention on iden- steel production. Coal also plays a majorand processing plants, which turn the the right decisions if you never leave tifying potential short term imbalances role in dry bulk freight markets, as it fillsraw material into copper wire and alloys the office.  and/or arbitrage opportunities, where to 1 out of 3 dry bulk vessels around thefor use within a wide range of different derive profitable trading strategies from. oceans. Conversely, as coal is a truly globalindustries. Think about the challenges in- Analysts will usually be located in the market, freight rates play a significant rolevolved in transporting a copper ore cargo core of the trading desk, side by side with in determining coal flow direction. Thefrom Zambia to China. Firstly, you need traders, so as to have full exposure to daily numerous interlinks give the coal analyst price movements and market develop- a unique exposure to cross-commodityShip operator ments. analysis The optimisation of Ideally the market analyst would be regu-moving goods around larly involved in customers meetings andthe world related discussions, which offer a great opportunity to challenge and fine-tune Azadeh Amini operator tracks the financial status of the Agronomy Ship Operator voyage and ways to deal with counter- The Earth laughs Shipping Asset Management party risk. He invoices the hire/freight and in flowers pays for DA, hire and other services i.e.Ocean transport is an efficient way of manages voyage cash flow. Lara Moutin soils, their role has evolved over the years moving goods round the world. It The dynamic nature of shipping makes it Senior Sustainability Advisor from a vertical expertise to a holistic and involves moving high value goods unpredictable to some extent, and far from Sucafina integrated approach that allows to tacklewith a high value asset. Embedded risks a routine task. Even on voyages following simultaneously and timely crop physio-are not limited to financial risks only, but the same route you can expect some- The term agronomy is derived from logy and management, technology, yield,include crew safety as well as environmen- thing new each time. Ship operation is a Greek words “Agro” meaning field resistance to diseases and pest manage-tal risks with a huge impact. team-oriented task that requires organi- and “Nomo” meaning to manage. ment, soil conservation and soil fertility,A ship operator transforms a demand to zational skills along with some financial nutrients, protect biodiversity, energy anda service by executing shipping contracts; background. Agronomy has gained momentum year water use. Agronomists have also to bethe so-called charter parties. He or she Communication skills are a must as you after year because it is an international educators that disseminate knowledgereceives a fixture, and his output is a have to liaise with different parties i.e. dynamic discipline that looks at through farmers’ communities in orderprofit and loss statement. On the voyage master, charterers, owners, surveyor, and agriculture from an integrated and to help them grow the crops effectively,fixture a ship operator will plan for the so on. Paying attention to detail is vital. holistic perspective. efficiently and profitably while conservingwhole voyage from delivery point of A ship operator should be able to take Two factors have created that high natural resources and protectingthe vessel to redelivery; from speed and decisions under pressure and in a limited momentum: a) The need to feed one the environment.consumption of the vessel to cargo intake, time. Some basic legal knowledge is very billion additional people on earth within Helping to get a healthy soil, care for itsbunker stem, cargo operation at ports and helpful, as claim management is one of a short time frame b) Trust has become a nutrition, help to select the right crop/soil/all other requirements; all aiming at an the important things a ship operator deals key driver in a world of infinite choices, climate combination for the environmentalefficient performance with minimum costs. with day-to-day. time scarcity and multiple risk society. and economic conditions, define inputs useThen, afterwards he gives instructions I graduated with a Masters in International This paradigm shift has transformed the in alignment to crop life cycles (e.g. theto master/agents and other parties and Trading Commodity Finance and Shipping sustainability agenda into a pre-competi- right amount of pesticides, water, energy),monitors compliance. Fairly often the ship from the University of Geneva. This has tive issue. Ensuring food security through grow the crops while preserving biodiver-operator may need to adjust the schedule given me good insight into how each renewable sources, providing traceability sity, landscapes and wildlife, identify andfor various reasons. participant brings value to the commodity and transparency is very high on people mitigate environmental risks, find oppor-Other types of charter parties are time trading chain. In the course of the masters, and communities expectations. tunities to reduce energy consumption,charter fixtures. Operating a time charter I learnt about types of cargo traded inter- Agronomists are scientists and practitio- and optimize the use of water (e.g. watervessel needs less stamina and is a less nationally, requirements for financing a ners who are specialized in plants and meters, drip irrigation) are paramount. time-consuming task if all goes well. commodity and some legal background. The operator controls the eligibilityof the charterers’ instruction andavoids any risk to the vessel.On top of all other responsibilities, a ship

PAGE 26. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERSRole of an operator In-house legal counselin a trading company Successful merging of business and law Annelyse Piaut Operations Manager on in due time, check the documents Simeon Lachev  Operations, covering contract review Quadra Commodities to make sure they are compliant with Legal Advisor and negotiation desk, contract execution contractual specifications and with buyer’s Metinvest International desk, claims’ handling, «trouble-shooting»,For a long time, the operator has request or with letter of credit terms so sanctions monitoring, anti-dumping, anti- been considered a trader’s secretary. that the goods can finally be paid and Have you had the chance to question competition and legislation monitoring; In reality, this is a professional role obviously cashed for, and therefore allow a commodity trader about his/her  Dispute Resolution, consisting of arbitra-which requires specific skills and brings the delivery of the goods to Buyers. An secret ingredients of a successful tion and mediation handling, as welladded value to the business executed by a experienced operator will handle a dozen trade? I am sure that if you do so, the as judiciary proceedings and enforcement;trading company. vessels at the same time. trader’s feedback will refer to the quality and,The job of an operator can be different in This position therefore requires knowledge of the product or services provided to the  Corporate and Finance, including corpo-a small vs a large company; the primary of financing tools, freight and insurance customer, the knowledge of the market, rate secretary and shareholders’ relations,role is to execute the business contracted terms, INCOTERMS, geography, English and the flexibility and anticipation, the risk representations and participations, com-by the trader, which translates into conver- of course a healthy dose of common sense. management, etc. I am sure as well that pliance, etc.ting the goods traded into cash. The operator may be responsible for not a single trader will even think about An in-house lawyer needs tons of courage:But this is not as simple as it sounds! issuing and checking the trading contracts; mentioning the lawyer’s input in this list. courage to say “NO” to the executiveBefore being in a position to cash, a deal therefore a global understanding of the This is not surprising: we lawyers are per- management, courage to propose an alter-needs to be financed and insured, a vessel business and of the clauses incorporated ceived as the ultimate enemy of business, native solution, courage to disagree withhas to be chartered and documents com- in such contracts is required. The company the persistent showstoppers and trouble- long-time colleagues and often friends,pliant with contractual specifications and can be exposed to significant risk with makers. As a consequence, in most cases a courage to accept its own mistakes…legal requirements have to be issued; the these contracts and an analytical mind on trader will dare knocking on our door not It is part of our job as lawyers to saydaily job of an operator is to coordinate the part of the operator can help assess when a deal has been successful but rather things that people may not appreciatethese aspects, internally and with external and mitigate these and to ensure all the when the situation can be summarized by: but if we do that with the convictioncounter-parties. requirements can be fulfilled. “Houston, we have a problem…” that this is the right thing for theThe operator has to inform respective Excellent communication and organisa- Metinvest International’s legal team company, we have accomplished ourcounterparts of chartering arrangement, tion skills are required to be a successful consists of 6 lawyers having the following professional duty.appoint an inspection company to super- operator.  main activities: Finally, you should not become anvise the loading/discharging operations,  Strategy, encompassing good corpo- in-house lawyer if you do not have amake sure the instructions to issue ship- rate and legal standing, legal support good sense of humor. My manager keepsping documents are received and passed on strategic ventures, and legal projects on repeating that life is a joke, and no and initiatives (in particular trainings and matter how tough at times commodityCompliance and trading: promotion of a legal awareness within the trading business could be there is alwaysA fruitful relationship company); some room for a smile. After all, smiling is 100% legal!  Odile Roy de Puyfontaine through participation in industry groups Head of sustainability Head of Compliance EMEA & – there is certainly never a dull When the future matters Asia, Vitol Group day in the office. There are numerous challenges in my job, Guy Hogge where applicable. When sustainability-re-Ijoined Vitol in January 2010 to head but two predominate. The first is to try to Global Sustainability lated risks are identified across our range the Compliance Department for Europe, improve the understanding of our business Louis Dreyfus Commodities of business activities, it is the function of the Middle East, Africa and Asia, having among policy makers, especially in view the Sustainability Department to managespent 15 years at the London Metal of the specific set of challenges faced by The sustainability role sits within the and mitigate those risks, if necessary byExchange and Macquarie Bank. the physical markets. The other is at all Compliance & Risk Department, and determining and implementing a course ofIn the beginning, my relationship with times to try to convince the industry that leads one of four Compliance Officer corrective action. In addition to the inter-the company was rather like a whirlwind the Compliance Department is a “business positions at Louis Dreyfus Commodities. nal activities mentioned above, the Sus-marriage: we knew we were meant to be facilitation unit”; with time, it has learned It is the role and function of the Head of tainability function builds and maintainstogether, but it would take time to get to that a good business decision is one that Sustainability to design and implement relationships with many of the company’sknow each other. Four years, multiple po- includes compliance and, if in doubt, to the principles of the Company’s Sustai- external stakeholders. This occurs eitherlicies, hours of training and a certain num- stay on the side of caution. We have achie- nability Policy. We continuously adopt a directly or via international commodityber of grey hairs later, it is a relationship ved this through a collegiate approach. more structured and uniform approach to and trade institutions such as the variousthat is working. My role ranges from advi- We all work together, from legal to finan- sustainability across all our operations. It round-tables and other forums that existsing on corporate transactions, providing ce, as well as IT, risk and the middle and is therefore important for our various busi- to advance the sustainability agenda.input to an ever-growing number of draft back offices. Recently, a financial publi- ness departments to be consulted, assisted In this way, Louis Dreyfus Commodities’regulations, implementing policies to com- cation ranked working in compliance the and if necessary educated on what consti- sustainability profile and agenda is com-ply with international regulations, desi- third most stressful job, after investment tutes a sustainable approach, and to set municated to and advised upon by NGOs,gning systems and controls to ensure staff banker and financial trader; but I would implementation and improvement targets financial institutions, customers, suppliersand companies remain compliant at all not change my career or my company for and other concerned stakeholders. times, as well as ensuring that our industry anything in the world, and I look forwardis better understood by key stakeholders to celebrating the 10th anniversary of my taking up this post. The Honourable Company The World’s Key Industry: History and Economics Commodity Trading Guide 2014A History of the East India Company of International Shipping The Hightower ReportJohn Keay Gelina Harlaftis, Jesús Valdaliso and Stig Tenold David Hightower and Terry RoggensackHarper Collins, 2010, 496 pages, USD 8.17 Palgrave Macmillan, 2012, 320 pages, USD 85.30 The Hightower Report, 2013, 56 pages, USD 15.45ISBN 978-0006380726 ISBN 978-0230369146 ISBN 978-0978928575 During 200 years the East India Com- For anyone interested in the growth For 20 years, the Hightower Report’s pany grew from a loose association and development of the world economy, Commodity Trading Guide has been of Elizabethan tradesmen into «the knowledge of the history and mecha- recognized as one of the best research grandest society of merchants in the nisms of shipping provides important and reference tools in the industry. universe». As a commercial enterprise insights. The international shipping This annual publication contains an it came to control half the world’s trade industry served not only to integrate impressive amount of valuable informa- and as a political entity it administered world markets, it was the international tion for anyone involved or interested an embryonic empire. Without it there business par excellence and preceded in the commodity and financial future would have been no British India and trends that later became visible in many markets. For all. From the individual no British Empire. other sectors of economic activity. investors to producers or end users.

PAGE 27. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERSA wide range of professional coursesThe industry also needs develop the syllabus, GTSA organized and coor- GTSA organized but also abroad. More than 70 people participa-non-academic training geared dinated a working group composed of industry and coordina- ted in theses course and the feedback has been sotowards a practical approach experts specialized in Operations and Shipping, ted a working positive that some are already planning to haveand access to the industry with the input of HR managers. It resulted in group composed a further session in 2014, to pursue specific sub-for beginners. the launch of the GTSA Operators’ Certificate of industry jects in greater depth. in 2012. experts in Based on a deep understanding of the topics to Silviane Chatelain What makes this program so special is that all Operations be covered, the length wished, the number of specificities of the three main groups of com- and Shipping participants and their level of knowledge, weFEducation & Training Manager, GTSA modities (agri-commodities, energy and oil) are with the input draft a proposal that will serve as a base to be or a successful and competitive addressed by experts. They are supported by re- of HR managers. fine tuned in a collaborative approach. company, keeping employees’ levant guest speakers to give further in depth We also propose a two days course to enhance knowledge up to date and effi- and varying perspectives. It offers to junior or inter-departmental collaboration. The aim is to ciently training the new recruits aspiring operators a very good general overview provide the participants with a comprehensive is a constant and demanding chal- and more flexibility to join different commodity understanding of all steps needed to conduct a lenge. desks. deal to its end. It stresses in particular the im-Moreover, it is a crucial objective for a trading Participants coming from other industries portance of each phase of a trading contract andhub, such as the Lemanic Region, to offer a wide particularly appreciate that in a short period of emphasizes the interactions between them. Therange of training programs to ensure the sus- time (4 months) they can learn enough about the course has been already delivered to more thantainability of the location by developing a local commodity trading sector to see how it can fit 40 people and a session open to all companiespool of expertise. with their experience and knowledge. will be organised soon this year.Since 2008, GTSA has been working with the The program takes place outside of working This concept is also particularly interestingUniversity of Geneva to propose two different hours, in order not to interfere with professio- for new employees in the industry, as well as foracademic courses: a Master for young Bachelors nal commitments and due to the strong demand, administrative positions, such as human resour-and an Executive course for professionals having two sessions per year are scheduled. ces, IT or accounting to speed up their unders-a minimum of three years of experience. The GTSA Operator’s Certificate has rapidly tanding of the commodity trading specificities.It was clear that the industry also needed non- gained a very highly regarded reputation and GTSA has acquired a great experience in deve-academic courses mainly oriented on practice employers started to contact the association for loping courses that gives participants an imme-to support its training efforts for beginners. To good candidates having followed the course and diate practical use thanks to a perfect unders- looking for a job. tanding of the specific needs of each company. Last year, GTSA has provided various bespoke Thanks to our close collaboration with nume- training to different types of companies (major rous top trainers, we are able to contribute to trading houses, extractive industries and service the reinforcement of the competitiveness of the companies) in different locations in Switzerland industry. 

PAGE 28. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERSRisk Management The Middle officeAn all-encompassing At the intersectionfunction of trading metiers Laurence Lenfant various departments in order to gather the Lionel Crivelli correct pricing by choosing the appropria- Head of risk management, Lia Oil information needed to analyse the non- Middle Office Distillates te price reference, and highlights the basic covered risks. He or she thus organises the & Biofuels, Mercuria risks inherent in physical trading. He or sheIn a commodities trading company the monitoring of risks with a view to allowing hedges risks on the derivatives and foreign role of risk manager consists primarily him or her to decide whether or not to set Trading operations in the physical exchange markets in order to maintain the of controlling the application of rules up a cover strategy by the conclusion of markets involve exposure to a wide commercial profitability of the operations.and risk limitation approved by the board hedging contracts, depending on the risks range of risks, operational and finan- Finally, he or she establishes the perfor-of directors and, if need be, of informing the company is prepared to take, as gene- cial, such as those of price or exchange mances of the portfolios, calculating thethe latter of any violation. The role also rally defined in a hedging policy. rate. Complex and diverse, these risks are profit and loss of the various strategies,extends to supporting decision- making The risk management function is all-en- often interconnected. totally independently of the front office.in trading, through analysis and supervi- compassing, at least in small to medium The middle officer’s function is to identify This requires a solid understanding ofsion of objectives, while endeavouring to trading companies, for it requires concen- these risks by means of precise, clear indi- price formation mechanisms, as well assecure the value of transactions. trating the competences, both «classic cators. This demands at the same time the an all-inclusive vision of the operational,The risk manager concentrates especially financial» related to risk aspects of the individual monitoring of each operation logistical and financial costs impactingon the market (risk of price variation) market, and an understanding of the parti- executed by the front office, as well as an on trading activity.along with the risks associated with cove- cularities of physical commodities trading all-encompassing, integrated approach to Although part of a precise framework,ring these price variations (risk of liquidity, as practised by that company. the associated risks. It is his or her task to these analyses affect operations withbase risk, etc.). As trading constantly evolves, it is also follow the operations from one end to the diverse characteristics. The middle officerThe other types of risk associated with necessary to adapt risk management and other, supported by specialised computer must be rigorous, analytical and a goodtrading – and not negligible – such as its tools to new needs. systems, while fostering communication communicator, to make sure that the fullrisks of compensation (political / financial «In order to win, you have to risk losing» among the various departments involved extent of the risks is well understood. It is/ banking) or operational (shipping / mer- (Jean-Claude Killy, triple Olympic cham- during the life of a contract. an excellent entry point into the commodi-chandise) are generally followed by other pion.) Each of us must define how much His or her typical day revolves around ties trading sector, offering a view of thedepartments, such as finance, shipping and he wants to win, and control the risks.  recurring procedures. First of all, he or she activity that is both global and detailed. operations. presents the global position of the tradingOn a daily basis the risk manager and his portfolio, organised by type of product, na-team are in constant contact with the ture of the transactions (purely physical or paper) and by maturity. He or she ensuresBusiness Controller Administrative assistantKey to the decision- The ambassadormaking process of the companyGeorgy Roshchin Catherine VioletBusiness controller, Neste Oil (Suisse) Administrative Assistant, SucafinaHave you ever thought about how measurement, and for a business control- The administrative assistant is respon- trative and clerical services in an effective a business concept that takes root ler, good measurement starts with sound sible for overall front office activities and professional manner. This includes in a manager’s mind becomes part internal processes. Our secret for good of the company and the maintenance managing and organizing all aspects of in-of a company’s business model? How can management lies in its business procedu- of a pleasant work environment for all. ternal and external meetings, ensuring anwe measure whether the final results of a res. Being an open and dynamic company, Tasks are numerous and various. It also optimal meeting environment and efficientbusiness activity correspond to the it focuses on making processes transparent includes small duties such as the main- logistics. In some instances, the assistantinitial expectation? That’s the role of a and fluid. A business controller’s task is tenance of the reception area and main may be organizing and maintaining diaries.business controller is to assist in business to analyze the internal processes and give conference room as well as sorting mail. The third role is hospitality managementprocesses by providing insight regarding recommendations on how they can The main responsibilities include being such as arranging travel, visas, insurancethe company’s trading activities. be done better. always available to provide administrative and accommodation for local and over-By analyzing a wide range of information, What is my recipe for becoming a business support to management staff. In a word, seas’ employees as well as guests andthe business controller brings together controller at Neste Oil? It’s not rocket the administrative assistant is the Ambas- clients.different aspects of the business so that science: a Russian education in chemis- sador of the company. At Sucafina, the administrative assistantmanagement can make smart decisions. try, engineering experience in Finland, The first role is the management of the re- is also responsible for the secretariat ofThere are two major parts to this type of followed by business management courses ception area ensuring effective telephone the SCTA (Swiss Coffee Trade Association)job: analyzing financial performance using at the University of Geneva. Now I am and mail communications both internally which includes some mandatory tasksmodelling and spreadsheet calculations, gaining valuable on-the-job experience, and externally and maintaining a good such as taking minutes for all meetings;and preparing a financial report based on working with a team of professionals professional image. Duties include, but are drafting, typing and dispatching all SCTAthis information; and communicating with on a daily basis. not limited to, greeting and welcoming correspondence between members. Alsoeveryone involved in the trading process. A business controller has successfully visitors to the office and informing the liaising with relevant individuals andOn a daily basis, the business controller done his job when the managers have relevant member of staff of their arrival; external organizations in arranging thereviews financial results, gathers logistical the necessary information in order to steer reviewing and updating on a regular AGM, preparing the agenda and draftingdata from operations, discusses the market the company in the right direction.  basis the staff contact and telephone minutes. On a voluntary note, the admi-with traders, studies market exposure to- lists; answering and routing phone calls, nistrative assistant can take part in moregether with the risk management depart- ensuring that all are answered in a timely challenging projects such as being invol-ment, and delves into financial costs with and professional manner and keeping the ved in the organization of the SCTA annualthe treasury department. office organized and functioning fluidly. dinner, a gathering of 700 people.This is a long process which gives meaning The role also includes the management of Depending on the adaptability and flexibi-to bare figures. It’s widely acknowledged office supplies/stationary to an efficient lity of the assistant and the management,that good management starts with good level and processing requests for furniture the assistant can become involved in many and equipment. different topics depending on working The second role is assistance for all mana- ability and past experience.  gers of the company in providing adminis-

PAGE 29. Indices | | February 2014The role that IT BORDEAUX - GENEVAplays in the globalcommodities business COMMODITIES INSURANCE SPECIALIST Mike Davies enough about our operations, processes Chief Information Officer and plans for the future. That’s why we are Grains Cocoa Coffee Cotton Rice Sugar Trafigura constantly developing new software, and upgrading existing programmes, to meetIsuppose it would make life easier if our traders’ ever-changing needs. With we could buy a commodities trading the continuing growth and establishment software. But even if we could, the of operations in new locations, our teamprogramme would probably be out-of-date must find ways to add new IT servers andbefore we’d finished installing it. With the connect offices in remote areas withoutrapidly growth of my company during the affecting day-to-day operations in otherpast 10 years, its IT network has become parts of the world. Employees of a tradinglarger and more complex. Oil and metals company must make thousands of well-trades are increasing every day, in more informed business decisions every day. Youparts of the world, when compared with can’t do that without constant access to2004. rapid, reliable and secure IT connections.We need to capture information about Protecting the company against electro-every single stage of every single deal and nic security threats is another never-en-ensure all this data is accessible across ding responsibility. Cyber criminals aredifferent corporate departments. Add on constantly looking at ways to attack com-top of that our mining and warehousing panies. We can’t afford to let our guardoperations and you can understand the down for a second. Whenever possible, wechallenges we face in linking everything must stay one step ahead in developingand everyone together. Two of the biggest new defences and rigorously testing theirresponsibilities facing my team are softwa- effectiveness. re development and maintaining the glo-bal IT infrastructure. We can’t rely comple-tely on outside providers to develop theprogrammes we need, as they don’t know Steel Ores Oil Gas FertilizersInsurance as a toolin financing risks Alexandre Sœur few. The extents of the guarantees, the “YOU ARE MARKED TO MARKETS, Global Head of Insurance price, but also the services provided, are WE ARE MARKED TO CLIENTS“ Mercuria Energy Trading the main criteria for selection. It is up to the people responsible for the insurance Insurance solutions provider for:Companies active in commodity to find the best balance among the para- trading are naturally exposed to meters. U Marine Cargo risks that can compromise their Finally, it is the insurance team’s job to U Storageoperations, their profitability, indeed handle the accidents themselves, often in U Charterers’ Liability / FDDtheir resilience. The products that make complex circumstances, due to the pro- U Political & War Risksup our business are sometimes dangerous, ducts involved, the countries in which the U Trade Disruptionpolluting, fragile, intended for human accidents occur, and simply the growing U Credit Risksconsumption, perishable, intangible or speed of logistics. It is important to have U Contract Frustrationof great value, and the quality standards contingency plans ready to confront a U Claims recoveries & defenceare different each time, depending on maximum of situations. All of this involvesthe country in which we are operating. considerable synergy with the legal teams,Whether it is the risk of damage to these to which the insurance professionals areproducts, liability risk, or risk of loss of sometimes attached.income, trading companies need insurance Although no specific training leads toto protect them against these accidents. these posts in the trading companies,Those working in insurance therefore need many colleagues have legal training ora holistic understanding of the activities training in economics, and have oftenof the company in order to identify the spent the initial part of their career in thetypes of risk and better cope with them. insurance sector, either with insurance orThis implies a broad interaction with the brokerage companies. teams in charge of operations, charteringand finance.Risks of accidents that cannot be coveredin this way are subsequently transferredto the insurance markets. We work in closecollaboration with brokers who negotiatewith insurers, expert in understanding thechallenges confronted by trading compa-nies. This implies establishing relations oftrust with the players, of whom there are [email protected] - www.famarit.com FAMDEC013-Pubgenerique_ok_138,5x396_FR_GB.indd 2 28/01/2014 17:56

PAGE 30. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERSThe Financial Manager AccountingIn the context of in a commoditytransactional credit trading company Jean Christophe Bel Christine Callewaert General Manager, Webcor Finance and Administration Manager, Alcotra SAThe Financial Manager plays a crucial part in ensuring the proper functio- risks and hedging needs according to the Accounting is essential in the trading profit. It is based on an opera- ning and optimal performance of a commodities; the writing of the financial management of every company. It tional criterion: delivery by boat. A boattrading company. Indeed, in the context of statement... As we can see, there are serves as a basis for the collection number is issued for each delivery, as soonthe transactional credit approach, in which numerous and diverse steps to be taken of financial information on its operational as the related line of credit is opened withGeneva has demonstrated great expertise before being able to request and obtain functioning and for decision-making. a bank.for decades, the role of financial manager credit. The profit and loss account is the keystone. The accountant links this number to eachis varied and requires an excellent unders- Thereafter it is the job of the Financial It permits the determination of how the journal entry (sale, purchase, costs...),tanding of the trading business in order to Manager to establish a relation of confi- company sells, buys and spends. It is divi- which enables him or her to pinpoint antransform needs into funds. dence and total transparency with the ded into two components: profit margin exact margin per boat (difference betweenOne of the first tasks is to define the banking relationship manager, in order to and overheads. the total of the sale and the total of allstructure of the lines of credit, which can evaluate each critical situation, generally In our industry trading profit represents purchases and costs). In this way thespan production, transport, storage and resolved with the participation of all par- the operational result minus trading encoded data entered into the generaldistribution. Then follows the definition of ties. Good communication skills together activity. It is calculated by deducting sales, accounts and linked to the trading profitneeds in terms of volume and the finan- with a proper understanding of commodi- the purchase of products and costs linked are simultaneously logged in the costcing cycle: short term/long term basis; an ties and the mechanisms of transactional directly to operations, including freight, accounting.in-depth analysis of the compensation finance are a major plus for the trader’s storage, supervision and interest. To these Note that the accounting of a trading com-that will make it possible to determine the success.  costs are added all the overheads (salaries, pany is generally carried out in US dollarsterms of payment; an analysis of country office and travel, amortizations, finance as the work is exclusively with foreign charges and taxes). entities, with the majority of bills issued in Together with the general accounts, the that currency. The accounts are converted company sets up cost accounting, which into Swiss francs at the end of the year to permits, among other things, control of the establish the official statutory accounts.  la gestion du capital santé www.gsmn.chGSMN_Ad_281x198.indd 6 24.7.2009 13:12:49

PAGE 31. Indices | | February 2014 | Commodities ||| A GUIDE TO CAREERS InterviewBernard Morard | UNIGE«The curriculum at the University of Genevahas a world monopoly thanks to internships »Dean of the Faculty of Social and Econo- of 500 points in the GMAT test. The se- mic Sciences (SES) lected students then have until August at the University of to find the required internship with a Geneva, and Direc- company in the sector. We help them tor of vocational trai- by circulating their CVs on the Gene- va Trading and Shipping Associationning, Professor Morard was behind intranet, but also by organizing a daythe creation of the Master of Arts in of ‘speed recruiting’, in which candi-International Trading, Commodity dates have nine minutes to introduceFinance and Shipping. He explains themselves to a dozen companies. Thishow the training has set an internatio- system allows a precise selection of anal benchmark in just six years. number of students trained for the real business needs of the Geneva market.The Masters in International Trading,Commodity Finance and Shipping is What’s the typical profile ofentering its sixth year. Is it a success? a valedictorian?Absolutely. Ours remains the only MA It doesn’t exist! Last year, it was a stu-specialising in commodity trading to dent with a medical background. Whi-offer internships immersing students le many students come from bache-in business. Most of the companies lors’ in finance or management (60%),participating in the programme have others do the MA after studies in law,taken part in its design and are very international relations, engineering orsatisfied with the results. It’s also suc- natural sciences.cessful with students, most of whomare employed at the end of the course. Doesn’t the trading sector suffer from a poor image among young people?Is there any rival course elsewhere? Yes, there is a deficit among the generalTraining provided by the Cass Bu- public, because the big players in thesiness School in London and by the sector for a long time refused to com-Singapore Management Institute is municate. And when they began to dosimilar to what we do, but they don’t so, it has to be said that they did a pret-offer a direct bridge to the professio- ty poor job of pleading their cause. It’llnal world. I do however think private take a long time to restore a more rea-organizations in the future will try to listic image, and this will require thedevelop similar curricula to ours, as consideration of real issues, notably so-there’s a big potential. It should also cial and environmental ones. That said,be noted that some traders like Cargill many young people don’t have anyand Trafigura have intern programmes preconceptions regarding the sector.that work very well. How do you see the future of tradingHow is the course structured? in Geneva? Bernard Morard, Dean of the Faculty of SocialWe have two programmes. The Mas- and Economic Sciences (SES) at the University of Geneva, To me, everything depends on taxa-ters in trading lasts 18 months and and Director of vocational training at SES. tion. The move to a single rate of 13%,is aimed at students with little or no against 11.5% currently for the sector,professional experience. The Diploma 1985 PhD in Management Sciences. doesn’t represent a real threat to thein commodity trading, which can be 1987 Lecturer at the Faculty of Applied Economics, Centre for Economics market. However, it’s now time to de-combined with an MBA, is designed and Funding Technique, University of Law, Economics and Science, termine on what basis the tax will befor professionals who want to reorient Aix-en-Provence, Professor in the Department of Accounting Sciences applied. If the status of auxiliary com-in the sector. The course has been shor- at the University of Quebec, Montreal. pany disappears, traders’ taxes couldtened to 12 months. Both programmes 1990 Professor at HEC, Faculty of Economic and Social Sciences, Geneva. rocket. Apart from that, I’m confidentaddress all aspects of trading: products, 1995 Director of vocational training for executives at HEC, Geneva. that Geneva will remain competitivelogistics, finance, law, ethics, etc. 2007 Dean of the Faculty of Economics and Social Sciences, Geneva. internationally.Isn’t it exclusively intended for future Some have identified a risk to the repu-traders? tation of Geneva and Switzerland linked to the activities of traders. How do you view this problem?No, not at all. We train our students for a very broad range of jobs, in-cluding analysts, logisticians, financiers, lawyers, traders and even accoun- We take it very seriously. I myself am a member of a commission for thetants. These jobs are changing as large trading companies are increasingly State of Geneva which leans in the direction of greater accountability. Inbecoming industrial companies, implying a need for a wider range of com- our curriculum, we focus on regulatory, environmental and social riskspetences. Besides trading companies, banks and audit firms also employ that commodity trading involves. We have also invited the Berne Declara-master students every year. tion (note: the Swiss NGO which campaigns for greater regulation of the activity of traders) to deliver a course on the ethical code that professionalsThe number of applications received totaled 119 for the current batch, 150 two must observe.years ago. How do you explain this decline? So the future of your course looks bright?Most candidates now know that the selection process is demanding, sinceonly 20% of them finally succeed in getting the mandatory internship. Yes. We’re now working to develop research through a foundation thatIn addition, we don’t advertise much to raise awareness of the course would bring together professionals in the field, the State of Geneva and thebecause our strategy is to ensure the quality of courses, with fewer than University. The number of research themes related to the sector is almost30 students per year. infinite.Has the profile of students changed since the first year in 2008? For example?Yes, because the banking crisis has led many industry professionals to chan- The financing of commodity trading can still change a lot. Each cargo mo-ge career paths. The commodities sector is seen in this regard as an attrac- bilizes a lot of capital, but for quite short periods, of three to six months.tive alternative. Moreover, the number of students from outside the EU has One solution would be to issue bonds to finance each shipment. Thisdecreased as companies prefer to use their quota of work permits for more would allow banks to maintain liquidity, increasingly reduced under thesenior staff. This year 42% of students have a Swiss bachelor’s and 42% a Basel III international regulatory framework for banks. But the challen-bachelor’s from the European Union. ges of debt securitisation are many, so they offer very interesting research opportunities. How do you select candidates?  Interview Olivier PellegrinelliWe pre-select the dossiers that have a good bachelor’s and a minimum