How Commodity Traders Move The World

"திரைகடல் ஓடியும் திரவியம் தேடு" - ஔவையார்

("Fare even the seas to search for wealth" - Avvaiyar)

Do you think you are keenly informed about the world of economics, finance and geo-politics? Please allow me a gentle prick at that ego.

Did you know that:

- The combined profits of the three largest commodity traders is greater than that of Apple and Coca-Cola?

- Put together, the largest commodity trading houses had enough income to buy Goldman Sachs or Boeing in the 2000s?

- It was the trading giants that helped Saddam Hussein to sell his oil, funded the Libyan rebel army during the Arab Spring, and propped up Putin despite strict sanctions?

I did not know the answers before I read the stunning revelations about commodity traders in the book, "The World for Sale", written by veteran journalists Javier Blas and Jack Farchy. It gives many a riveting account of the history, the scale, the scope and the future of commodity trading. The book got shortlisted for the FT-Mckinsey book prize for 2021.

The first chapter begins like a spy thriller, in Benghazi, in the midst of the Arab Spring, narrating how the CIA and Vitol were assisting Libyan rebels. The book takes us to every part of the world including Jamaica, Cuba, Russia, Iran, Kazakhstan, China and many others. The daredevil traders go and make deals wherever possible, profiting on information and price arbitrage. They are glad to shake hands with dictators, terrorists or strongmen and are always unwilling to do the murky deals. These go-getters never hesitate to plunge into civil strife flashpoints for a quick penny.

Commodities are tricky things. They hide in plain sight and elude even the most curious watchers of economy and finance. But it plays a very important role in the political and economic security of countries and states.

For instance, a couple of days ago, there was a news item on soyabean farmers in Maharashtra. The farm distress in Vidarbha and Marathwada triggered by the falling prices of soybeans is giving the jitters to the ruling Mahyuti. Soybeans is one of the commodities that is traded on NCDEX, which is India's largest agricultural commodities trading platform. This is a very small example.

If you look at the "Commodities" section of The Economic Times, it is usually barren, except for some news about gold. Only recently, Lithium, Cobalt etc., which are needed to be successful in the electronics industry and the paranoia surrounding the Chinese monopoly of these elements, are slowly getting traction. On the contrary, the commodities section of the Financial Times is awash with news about how the downturn in China, energy transition and climate change are triggering global volatility in commodity prices.

The research is abuzz that the Chinese slack will be picked up by India, which is going to grow tremendously over the next 5 years to become the third largest economy in the world. Research from Australian Chief Economist and ANZ posit that theory.

Let us come back to the book. Trading giants like Glencore, Trafigura, Vitol, Gunvor etc. handle metals, oil, coal and other minerals worth hundreds of billions of dollars. A couple of statistics to give an estimate of the financial power of these firms: The five largest oil trading houses handle a quarter of the world’s petroleum demand. Glencore is the largest metals trader, accounting for one- third of the world supply of cobalt, which is so crucial for electric vehicles.

The agricultural commodity giants - the ABCD of the game - viz. Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus have operations spanning the nook and corner of the world. ADM and Cargill have a sizable presence in India. The seven agri-trading giants handle about 50% of the world’s grains and oilseeds!

The book traces the growth of commodity industries right from the end of the World War 2 to the present day, through the prism of buccaneering traders and their companies. They have been symbols of unfettered capitalism,  and their stories are worthy of a few TV series.

The likes of Marc Rich, Ian Taylor, Andrew Hall, Ludwig Jesselson, Jeff Zients, John Deuss, Ivan Glasenberg etc. have all made themselves indispensable to world leaders and dictators by trading their commodities and helping them finance their budgets that further boost their personal wealth and earn them political legitimacy.

The rise of the legendary Marc Rich is described in much detail in the early chapters. He had defied the US sanctions to trade oil with Iran during the Iran hostage crisis and was on the FBI list of top ten  fugitives for many years . Bill Clinton pardoned him on the last day of his Presidency.

There were four waves of the commodities boom:

1.    Nationalisations of the oil companies in  Middle East in the 1970s

2.    Breaking up of the Soviet Union

3.    Ascendancy of China

4.    Globalisation and financialization of the commodities market

Most of these trading companies have their offices in Switzerland and needless to say, route money through various tax havens to various shady characters. Only in the last decade have the governments begun to take cognizance of their numerous tales of corruption and misdeeds

In fact, until 2016, Switzerland had allowed bribery payments to private individuals to be marked as expenses! This author has reviewed the book "Moneyland" in a column for Swarajya.

Unlike the large shareholder base of publicly listed companies, these firms are owned only by a handful of individuals. Quite remarkable for companies earning hundreds of billions of dollars of profits! The IPO of Glencore in 2011, laid bare the riches that various traders had accumulated. It was revealed that the IPO produced six billionaires and hundreds of multi-millionaires. In 2017, Ivan Glasenberg, ex-CEO of Glencore, was awarded by Vladimir Putin for his services to Russia.

There is a total absence of India in the book, except for the mention of Arvind Tiku, a Singapore based Indian investor, who was friendly with the son-in-law of the dictator of Kazakhstan, and thus facilitated deals in oil and gas. "Crazy Yang", the Chinese legend that pioneered commodity trading in China during the boom of the 2000s, finds mention in the book.

In recent times, the commodity giants have diversified and are moving up the value chain by buying processing plants. Earlier this year, Warren Buffet had invested 9% in the top five Japanese trading companies, indicating that the commodities business still has legs.

Large scale commodity trading in India is restricted to large public sector organisations - the oil PSUs, Coal India, State Trading Corporation, Metals and Minerals Trading Corporation of India etc. The large Indian conglomerates such as the Tata group, Reliance Industries, ITC, Adani, Godrej and so on have their own trading arms. (For retail investors, MCX and NCDEX platforms are available for non-agri and agri products respectively.) Restrictions in rice and wheat trading, under the Essential Commodities and the APMC Acts. also prevent the development of a free-market.

If India were to blossom into a manufacturing giant, then the commodities to support the growth should grow concomitantly. How are we developing muscles to procure these commodities at a massive scale from various countries and channels? Will the global giants get into the game sooner than later? Those will be questions to watch out for. Hopefully we will have home grown trading giants in the next few years. After all, Indians have been traders forever!

To sum-up, this book is unputdownable. (The audible version is really good as well.) It is written like a corporate thriller, filled with intrigue and back-stabbing. It shows how powerful traders manage to more-or-less make countries their own fiefdoms. But, to be fair, not everything is shady. The book is also an ode to the spirit of men (hardly any women in the business) that move mountains and get things done.