Hi all, just wanted to create a topic on how physical trading shops have been doing the last couple weeks (think big shops like Glencore, Vitol, Trafigura). I understand physical trades are hedged and volatility is generally good for these shops, but I have a few questions on COVID's affects. 1. What desks have been profitable or unprofitable 2. Is there word of layoffs or hiring freezes for incoming full-time hires? Any info would be very helpful. Thanks.
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Way, way too early to know.
Crude desks should do well with those contangoes, same for wet freight desks. Most of the other guys, probably not so much although demand destruction hasn't really filtered down to the commodity level ex-China yet.
Again, way too early to be planning layoffs. Plus what are phy desks supposed to do in a couple months when things subside? There should be plenty of work to do. For incoming hires might be more challenging. I think a lot of interviews are being postponed and at this point it's probably hard for most people to even think about it.
thanks for the insight
I know you mentioned that it is way to early to to be planning layoffs but who would you assume would be let go first? I am a freshly minted grad, 10 months on the floor, and I haven't quite built my book to the point where I am compensated on a P&L basis. For this reason I am concerned that the other rookies (and myself) will be let go in lieu of firing underachieving traders who are further in their career (20 yrs). Further, in the event of a full scale layoff at the company what are my exit options?
20yr old traders are expensive if they are underperforming. If you started in the industry less than a year ago you are probably cheap and in an ops role, not sure you would be the first to get the axe. more importantly though, the people who are liked are the people who will be kept.
thanks for your helpful comments GoodBread. I recall that you worked in metals--how are things looking for your particular commodity or in general? Anything interesting things happening due to the current global situation that you could comment on at this stage?
Some plants are buying less but ultimately the impact higher on the supply chain is yet to come. What could really impact things is if ports are closed.
Lots of physicals were hugely short on crude from what I know and knocked it out of the park
Where'd you hear this? I would love to know where 99% of this board get's their information from.
When I was interviewing, I often read that volumes are one of the most important factors in how healthy the industry is or something along those lines. In general, does that mean a big global demand hit (in the sense of the word as say the WSJ means) will wreak havoc on the industry's profitability or is it a much more complex picture than that?
Profitability is really a function of margin and volume. Volume most likely will be decreased by the recent macro events. Profitability however will be increased. Increased volitlity, steepening curves, lowered interest rates, lowered fuel costs and increased storage premiums will all benefit physical houses margins. So while nobody knows for sure yet, most likely a decently well positioned desk should still do well in this environment.
Profits = Margins x Volumes so volumes do matter but as the person above said, volatility, contagoes, lower interest rates... all potential sources of better margins.
Big picture, volumes do matter. If you are doing 5% of the crude oil market, that is potentially a lot more profit than 20% of a base metal. Market concentration can be helpful regarding the margin side of the equation. If a market is dominated by integrated suppliers and producers and a host of traders are fighting for the rest, you better hope the volumes are there.
I know couple of guys who made 5M on a day if that helps you
As physical traders for their own or trading house?
Now that everything is in the rearview mirror, it looks like nearly the entire industry made record profits. With the exception of a certain American major that decided to restrict capital right as the most profitable opportunities came about.
Have the effects taken place yet? What's the space looking like now?
every guy i know had a record 2020
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