What's operations like at Trafigura metals right now?
Half a billion is huge even for Trafigura, especially if metals has been underperforming relative to energy. Is everyone (ops and traders) getting crushed right now?
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unfortunate for sure for Traf, but they will take the lickin and keep on tickin
This event isn't a systemic problem or cause for long term worry
What? Isn't this a common problem for metals? Hell I'd say my bank did more DD during 2021 than it seems like Trafigura did on these nickel cargoes
Can someone shed more light on "transit finance?" Is this something already common in commodities or up and coming?
https://www.bloomberg.com/news/articles/2023-02-13/trafigura-s-nickel-n…
Very common, basically another style of “trade finance”. Existed for ions. Credit analysis is a very important part of physical commodities.
What kind of roles at a trading house like Trafigura would work on deals like that? Aren't the "traders" mainly developing relationships, hedging, etc.
To begin with there is very little money in "hedging" simple hedging is an RFP process sent out to various firms and very thin margins. The high margin business has to do with structured solutions and as you mentioned deep rooted relationships. The best originators (or even those traders who are originators first) understand how credit works and how to protect the firm. Some of these firms will also have internal structuring teams to help with the originator explain the risks to leadership but no doubt the trader drives the process still. Then the CFO side of the business has an actual credit group that makes sure everything is the way it is and money is actually flowing not just P&L. Finally legal would work with the traders to make sure the firm is protected (which again in this case probably very strong contractual language helped later on).
End of the day "whatever is the loss" does not fall on the operations/credit/structuring it falls on the owners of the firm and traders involved to begin with.
Interestingly enough I've never heard that much about credit in physical commodities on this forum. Have always heard the same old "physical traders move products from A to B" and not much more to it.
Remember bloomberg got their details from court documents so the army of lawyers already got their pound of flesh. Beyond that many of these deals have a “margin of error” built in. So what you see as $500mm for a fun headline in reality ends up being $80-100mm 3 years later. Still a painful loss but manageable.
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