B (3:27)

Yeah, it's kind of fascinating, right. We're in this sort of topsy turvy world where when usually things are going well really badly outside of you know, Lausanne, things are going quite well inside it for as you say at the conference. And it was, it was quite cheery in that sense. Things can get a little bit too broken which we'll come on to and actually start to some of the structures that have been in place break down. That means that, you know, the risks aren't, aren't manageable. And you're right, the backdrop has been, you know, we had the incredible volatility of 22, 23 or 20 basically through to sort of 23 and then, and sort of, you know, super cycle this is, you know, we're going for it guys kind of thing. And then really 24, 25 have been sort of a story of despite continued ructions in the geopolitical world and very far from normal in the grand scheme of things, declining margins because the commodity traders had done what they were meant to do which was solving these problems in time, space and form. And people had sort of put in place play some guardrails around some of the experiences from 2020 and 2022, Russia's invasion of Ukraine. But I guess this has brought it right back home that those who hold the thesis that we're in a very different world now and that we're going to have more volatility for longer driven by de globalization, decarbonization, digitization that if you're currently building a commodity trading platform within your minor major producer, whatever it might be, you're still on the right track basically. So I guess this has reaffirmed that message.

A (5:05)

Yeah, I mean, I guess in general this has been a good time for people who have length globally in oil and gas and metals and other things. Right. And I've been covering commodities for quite a while and general interest kind of ebbs and flows as I'm sure you know, anyone in the sector knows, sort of bring it up at the pub or at a party or something. You know, sometimes people are really interested, sometimes less so. But now it feels that everyone wants to know what's happening in the oil world in particular. And for the companies that are in the middle of it, they need to be, you know, they need to be aware of the risks they're taking or not taking. Right, yeah.

B (5:55)

So you also mentioned that actually it would have been probably a slightly different story that had been a month earlier, which I agree with you. And there's a financing backdrop. We'll get onto there. It was also, I think would be slightly more interesting if it had been a month later because we're still in this, as Russell Hardy said, this kind of. We're on borrowed time at the moment or on borrowed supplies for the most part. Everyone's just working down inventories and so forth and the markets are pricing in. The general expectation is that this is. We just did an episode with Doomberg that kind of escalation is just too deleterious to the world and the fragility of these, the global economy from the fragility of the Gulf States and the Straits of Hormuz and how vital it is for energy. So there was kind of like a no, we're sort of waiting and seeing bit at the moment, a lot of the challenges of sort of these contracts being force majeured and so forth. You've just written about that. We'll come on to it. But do you get that sense as well? It was kind of like generally the sentiment was one of this is going to resolve itself, it has to. And it wasn't quite, you know, everyone was sort of. There was a sense that we were on borrowed time a little bit, but it wasn't quite. Panic stations.

A (7:09)

Yeah. And look, I guess, you know, the traders for good reason, talk. Talk their own book a little bit in that sense. Right. Things could get really bad. So I think you need to keep your traders happy and maybe pay the price now if you really need the product. But also there's a solution and Richard Holtom said it. The traders are really solution providers when people need it. And we've seen that in the geopolitics of this year with the US bringing in VTOL and Trafigura to lift Venezuelan oil when it really needed to and you know, looking to bring in Mercuria Hartree Traxis, I think as well into helping it build metals and critical minerals stockpile. So yeah, there's an element of geopolitics to this as well. Right. Where commodity traders, which have traditionally been like apolitical to an extreme, in a way, are being you know, tapped up to an extent and, and getting closer to big governments to help get products from A to B, but also ensure security of supply.

B (8:26)

Right, yeah, yeah. There's a, there's. And this is kind of that be careful what you wish for element here. Right. Because. And there's a thread that we've been following which is, you know, the, these are, all these entities were built in a world of just in time economy and a globalized economy and a free trading economy. And now we're entering a world where security is the most important facet of that kind of trilemma of security. Efficiency. Sustainability. Sustainability. You know, it's kind of out the window a little bit, sadly, you know, and, and all of these CEOs noted that they, you know, were variously coy about it or not, you know, and actually to have US Government officials on three of the panels, I think, spoke for itself about their proximity to the, the red telephone on the desk to major leaders in the West. But there's at the same time that's kind of picking sides. Right. As well. And if you, if you start to make bed with, with various governments, that also means that you can't make bed with, with others. So it, you know, I just could. Could get your take on that. Is that a fundamental limiter to the opportunity in front of these companies?

A (9:36)

Well, you know, we wrote about this to an extent ahead of the conference that the slight elephant in the room is China. Right. And China's the by far the biggest consumer of all commodities. And not to a huge extent, but to sort of maybe a smaller extent. You know, some of these trading companies have been quietly unpicking some relationships that they'd been growing or were developing in China. You know, and that says a lot. As we know, my background is covering metals and we can see in Central Africa how the US and China are really duking it out for influence over copper and cobalt production and the direction of that production in the Democratic Republic of Congo and other countries. So, yeah, I think the traders would probably push back on picking sides and maintain their complete neutrality amongst things. And obviously this has been the business for years and years is to pick up the phone to everyone who calls and says, hey, I need some oil or I need some grains or some metals. But yeah, look, it remains to be seen, I guess, as, as the world seems to be sort of fracturing geopolitically how this benefits and how companies that have been not household names, let's say I sort of push back A little bit that they're like totally in the shadows, but they're quiet companies, they're private companies owned by small groups of people. And yeah, I think they have a tightrope to walk to an extent with some of the bigger economies if they indeed do fracture. But look, usually I think, you know, these companies are also, you know, they offer, offer a path to sort of getting things done in a way. Right. And I think that's something that most, most countries can get on board with to an extent. But also that seemingly, you know, when I talk to traders in the market, they feel ideologically that that's the way the world is going. Right. There's becoming more mercantilist and less ideological, which is kind of interesting I think like culturally maybe it's becoming a trader's world, but that's not quite for me to say.

B (12:03)

And this is the point perhaps about. We were talking about this prior to starting hitting record, right. About this is all driving that consolidation. There are a few very big houses per force because of the financing needs at this level of volatility. And those are, they're sort of further consolidating by getting into other. One of the backdrop stories I didn't mention on my notes from the FT was, you know, how far we've come in terms of, you know, VTOL now trading metals and ags and so, you know, the cross pollination of different commodity verticals. But there is a point with, for those very large companies, they suddenly become too big to ignore by, for governments. Right. And they are probably somewhat protected from that. But that definitely is a consolidation driver. And I agree, you know, you've got these five, whatever it is, key players from a physical standpoint that they're the only ones that can do the complexity. The challenges that Richard Holton spoke of with regards to Venezuela and they probably have enough stroke that, you know, they, they can tell a government, you know, to stick it effectively to a certain extent. But it is a consolidation driver.

A (13:09)

Correct.

B (13:12)

You don't sound convinced.

A (13:13)

I'm not entirely convinced, I have to say.

B (13:16)

But of which bit that we're not further consolidation or.

A (13:20)

No, I think we are like the industry is definitely consolidating. I think that, I mean in my mind it's more of a balance sheet play. So I think when these massive energy traders got much more massive after the sort of European energy crisis and the gains from that, they're able to leverage that balance sheet into markets where I cover commodity trading for Bloomberg and commodity trading businesses and often that's Seeing how traders are working in a particular market and the stories that that brings really. But you can see for example in, in metals where you have the huge spikes in volatility for, for copper, aluminium, nickel, in softs, where you know, there's been huge moves for cocoa and coffee, you know, some of these smaller companies, it's really difficult to ride out those volatile waves right. In prices and, and you need a lot of credit from banks and a lot more capital and a lot more equity to get more credit or to, or to pay for higher priced commodities. And so, you know, we've seen in, in soft commodities you have Hartree, it's a big energy trader buying up smaller but you know, still big, big name companies. Yeah. Edna Touton. You know, these are big names in the world of coffee and cocoa and other softs, but you know, they're not nearly the size of an energy trading company just by like the nature of the business. And I think, you know, it's probably to an extent, you know, these big traders are moving into different markets because they see limits in how much they, more they can grow and in oil and gas and they can leverage a big balance sheet to make an educated bet on volatility in other markets and being able to solve it. Because if everyone else is struggling because they're dealing with margin calls and they can't afford to buy more cargoes when the market is moving really fast, then if you do have a lot of credit, you can just go and do that. And the margins are made in those moments to an extent. So yeah, I think it's more, a little bit more of that where you're seeing, you know, sometimes. And it's also, you know, when we talk to them and certainly when we interview them, these companies sort of say they're often natural steps. Right. So, you know, Trafika has been trading base metals and battery metals for a long time now. It's, now it's trading gold and silver. You know, Vitol is, you know, the world's biggest independent oil trader. Trades a lot of energy and you know, so moving into copper and an aluminium and an iron ore and things is a little bit of a natural step. Right? You know, some of the fundamentals that affect some of these markets also have knock on effect in other markets. Right. And we've seen that in this particular crisis, right, with, with sulfur that, that came up. Everyone's a sulfur expert now.

B (16:52)

Yeah, yeah. I've got a pod lined up on sulfur.

A (16:54)

Oh my God.

B (16:55)

So, yeah, sulfur and fertilizer. I'M burning up.

A (16:59)

How long for? 40 minutes, one hour exactly. But I mean, you know, these, these are really turns out these are really critical markets. Right. Especially if you don't have them. So yeah, I think that's really interesting for me certainly is how you're getting these bigger and bigger players. And I think the FT conference is also, the Commodity Summit is very big for the banks. Right. And I think what you also have, there is certain limits in appetite of how banks want to sort of onboard new companies, smaller companies, you know, they deal with a big, big client. They can, they can tack on lots of different products, whether that's, you know, FX hedging or M and a deals or advisory and things like that, which, you know, buying assets, for example, you know, you might need, might need a bank to help you with that, which, you know, big, big revenue drivers. So they're also part of the story in terms of, you know, they, they've backed a lot of these big companies for a long time and yeah, to an extent they've, they've helped them become the Goliaths that they are. And if you don't have those, if you're not on that train, then it's, it's difficult to get on. That's not to say it won't happen because obviously, you know, you've got these super interesting companies in Denmark, a lot of these power traders, but elsewhere in Europe as well and, and other parts of the world who are doing really interesting things that are sort of new trends and you know, maybe that gets absorbed into the bigger companies later on. But you know, certainly in the short term, you know, you get it is still a very dynamic market. I would say like, you know, we're talking about the big guns, but yeah, lots of smaller companies doing interesting things as well.

B (18:53)

Yeah. And I think there's enough sort of, you know, the velocity of change is providing those opportunities. But certainly I agree with you. Right. The, it has been a story of financing and the scale required. On the flip side, I think this is interesting and it's not too much to go into, but I think we would have been in a very different world had we not had kind of the, the trial run of 2023.

A (19:14)

Right.

B (19:14)

You know, if you think back to that FT conference in March 2023, it was. Or was it 2022? Sorry, am I getting this wrong?

A (19:22)

Yes, 2022.

B (19:24)

Yeah, like that entire, I mean that was, I don't think I quite realized the scale of it at the time. But you know, the Credit Suisse had Just gone down. You know, there were trading houses purportedly a couple of days away from default basically because of the scale of the margin requirements. All that story wasn't there this time, even though the volatility is even higher in some senses because the banks have mobilized, the companies have recognized that challenge and you know, put a lot of time and effort into cash management, cash forecasting, extra lines and so forth. So it's interesting that story wasn't there but going back to that consolidation point, the other thing that's happened alongside you know, this sort of virtuous cycle if you'd like or vicious cycle of consolidation is of course these companies have been making extraordinary profits certainly in those three years of 2020-2023. What was your sense? There was a couple that obviously had, you know, alluded to some triage early on but generally speaking, as you say, the mood was relatively cheery, which generally means that they're printing billions. What was your sense if anything on kind of Q1 results?

A (20:30)

Well, it's interesting you say that. I think in my time covering commodity traders, the best trader has often give off that vibe even if their positions are actually like hemorrhaging into the red. But I think we reported that this has been a great quarter for the traders, certainly the biggest ones. And I think some of it it's not, not only this shock, right. I think the winter storm and was it, was it January this year in the US was a really big Venice.

B (21:05)

Yeah, that was a big hit to some.

A (21:06)

Yeah, yeah. Revenue driver for, for some of the, I think Castleton mentioned it on stage. But certainly the power and gas U.S. power and gas traders and you've got these big gains in copper and gold and more recently aluminium which have been helpful for people covering metals as well. But yeah, I think you get these huge price moves and that that requires people to stress test certain situations. And definitely, you know, I think the biggest companies a have like much bigger balance sheets, much more cash. So you know, some of them have kind of doubled in size since, since 22, which means they've just got a lot more liquidity on hand. And I think they put together some, well I say some, sometimes billions of dollars worth of sort of very short term credit agreements with banks when this all kicked off because there's a sort of time lag before they can draw on some of their other credit lines and things like that. But yeah, definitely the biggest traders have this optionality they call it but you know, they've got supply agreements for oil and gas and everything. All over the world. So when there is a shock like this and I think just to bring it back to the market as well, you know, Saad Rahim said, you know, this is an inflection point that we're at, right? And we've already seen things happening in Asia and Africa and Australasia. It's moving into Europe more now, these supply shocks. But in those moments, the sort of ability to supply people with physical oil and gas and other things is where these companies make a margin, right? So yeah, I think it's interesting that that's been happening, but also that it could continue to happen. Right. I mean, it depends how long this whole thing goes on for. But what the traders were saying certainly on stage, but also off stage, was that to a greater or lesser extent, the horse is already bolted. And again, that definitely talks their book a little bit. But they'll be needed really to supply products in the short but also the medium term. The energy and resources sector is experiencing unprecedented changes. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high. And insight matters. Learn more@encoinsights.com

B (24:05)

and also loads of money to buy talent and they've got to deploy that money into diversity. All those things that you spoke about. Right. But it's, you know, it's a fascinating world where in some senses the hedge funds were on top kind of in the narrative. Right. The 23, 24 or 25 and were kind of raiding the, the trading houses for their top people and the banks for their top people. And it was a lovely liquidity event if you stuck with a bunch of deferred earnings that you could go to a multi strat hedge fund. It seems like though they have, generally speaking. Can you get your take on this? I would say the general sort of narrative out there, with the exception of one or two, was that the hedge funds have had a bit of a torrid time of it because they have had a financial market that's been doing slightly strange things and all of these more unexpected things and they haven't had that physical piece to be able to offset those losses by actually solving problems for people. What was your. Do you have any sense on that? What's your take on the financial players?

A (25:09)

I haven't reported it in great detail. But I mean, yes, that's the general vibe that I got. And that's a sort of structural difference in some of these companies. Right. Like we're saying the short term, even for the big physical players, you had to sort of duck and dive and move pretty quickly to ensure derivatives positions were, were managed properly. But then in the longer term, look, I mean structurally, when you lose, was it 10% of the world's oil supply, it needs to be found from elsewhere. Right. And you know, that's where the physical leg comes in and gets priced differently. Right. And that's just a more structural, I guess, maybe a more stable price, more stable margin. But you know, these are also businesses that have been doing this for a really long time. Right. And I think there's certainly in these trading companies people who've seen lots of different crises. I think Russell Hardy of Vitol said he remembers Gulf War One.

B (26:17)

I think he was talking about first Gulf War.

A (26:19)

Right. So having that knowledge and understanding of how these things shake out can be really helpful, I guess.

B (26:27)

Yeah, well, I think you're right. And the hedge funds haven't placed a premium on sort of experiencing multiple cycles. Right. They're sort of after a younger set. So what all of this is predicated on, and we've got a lot to get through, but and you've just written a really fascinating article on this is all of this is predicated on, of course, markets continue to function.

A (26:47)

Right.

B (26:47)

So the contracts themselves being viable, that, you know, the, the long standing agreements stand and all this kind of piece and obviously we started to see, we're already seeing these force majeures basically and arbitration courts are already completely filled up. And we know this from Enco Insights, our senior advisory network which provides a lot of expert witnesses. Those arbitrations courts are filled up from 2020 still, right? Yeah, that seems to me kind of if you get too much of this volatility, too much of these events, it's hard for the legal world for the sort of underpinning contractual nature of the global commodity trade to sufficiently stand up and therefore the risk to be managed. I'd love to get your take on that because you've just written a great article on it.

A (27:36)

It was definitely interesting to hear from some of the executives at the event how they felt markets were kind of slightly fracturing and these huge events. I guess some of these markets weren't necessarily set up to price off and deal with a situation where, you know, you have the situations that we're in at the moment and like you, I guess, you know, sort of a few years back it was really. But, you know, it's still being litigated this year. You know, things like the Hinlong collapse during the COVID pandemic. Right. And Zenrock and other companies like that. So, yeah, these events can, you know, ultimately, traders to a greater or lesser extent, you know, they don't always know who their counterparty is. Right. They don't always know who's up the chain, who's holding the, who's holding the resources before they buy it and where it's coming from and sometimes where it should be delivered to till very late in the day. So if we're talking about, to quote Richard Alton, Magenta being shock absorbers, then, you know, then it really is. Right. It means that other companies don't have to open themselves up to these quite extreme situations. But, you know, in extreme situations you get disagreements about the way things should have been done. And it does seem that there, there are big profits and big losses that will be litigated when all this is said and done and people debate, you know, how markets should have, should have operated and contracts should have been executed. But yeah, look, I mean, these, these are pretty extreme times.

B (29:15)

Well, it goes back to, obviously we had Jack on, Jack Farchi, your colleague on a couple years ago talk, doing sort of a deep dive into the LME and so forth. And, and this was discussed at the conference on one of the shipping panels about the various shipping indexes. You know, there's kind of damned if you do and damned if you don't. Right. If you do adjust the contract to reflect reality, there's moral hazard there. And if you don't, suddenly the contract itself doesn't work and, you know, liquidity drops to zero and you're sort of heightening these risks. So it's, it does seem that a, that obviously the lawyers are going to be very busy. There's incredible sums at stake. And, you know, these are very complex issues that, you know, as I say, require a lot of expert witnesses and that sort of deep insight in. But again, these are things that unless there's. Well, they're probably five years away from being resolved in some cases.

A (30:06)

Yeah, I mean, I would, as a journalist, I would, I would love to know how some of these conversations are being had. Right. And, and what's, what's actually going on behind the scenes. I mean, I think, I think it's just, there's just so many, you know, when you're dealing with such a big array of supply Shocks to such a large amount of commodities and commodity then you know, it's just going to affect so many people, right. So many different companies that should have been getting something at a certain time and they're not and they're either gonna, you know, work it out sort of between each other or they're gonna say listen, like we're gonna just have to take this to arbitration or to court. And yeah, probably a pretty good time to be an expert witness or commodity lawyer, you know. And that probably speaks to how difficult a time it is to actually get things from A to B and make sure things are, things are alright. But then, you know, I guess it also probably pays to be a bigger company where, you know, that's not to say just traders but also, you know, producers and other people where they're less likely to be challenged legally. Right. And I think if you're a smaller player, got a, got a big company who says look, the rules have changed, this is the way it's going to be, they're probably less likely to kick up. Yeah, yeah, well, yeah, like look, I mean we're just like just hearing the early rumblings of this stuff now, but it does feel like a reasonable sized boulder coming down the mountain.

B (31:43)

Yeah. And again all of it comes back to, and this is sort of the other big takeaway was the just in case economy is an expensive economy and at some point all of these risks that we passed on to consumers, it feels very, very inflationary. I'd love to get a couple of more takes from you. One would be the news yesterday that the UAE is pulling out of, of opec. Do you think this is sort of just a realpolitik at stake? Obviously they've got shorter pipes than other OPEC members. You know, the UAE and Saudi have a number of proxy wars basically going on. I mean, or is this sort of heralding the end of opec? And I guess that's probably not very bullish for oil in the long term. But what's your take on that and any reporting you've done on it?

A (32:28)

I have to say I've left the reporting on this. Well, I wouldn't say I've left, but the reporting on this has been done by some of my great colleagues who write about and focus on OPEC and the oil markets in that way. But look, I mean, I guess it comes back to why it's such an interesting time to be writing and reporting on these markets. Right? Is that oil and energy are so central to huge things happening in the world, right? And I think my colleagues wrote about geopolitical tensions that have been brewing between Saudi and the UAE for some time and how that's being reflected now in this split from OPEC and what that means. Right. I mean, ultimately it feels like the UAE wants to, when it, when it's able to export more oil and, and use that money in, to, to do various projects. But yeah, it's, it's a huge thing. Right. And you know, this could alter trajectories of, of whole economies in really important regions. So yeah, look, it's super interesting and, and I think longer term we'll have to see how it plays out. But in the short term, yeah, look, definitely the price is still high, right? I don't think it matters so much in the short term, but yeah, longer term, you know, everyone assumes that there's going to be more oil coming to the market.

B (34:00)

Yeah, yeah, well, I think there's a, there's a, as you say, there's a dedicated episode on it, but I think it is just part of this mercantilism. Well, ironically, you know, we're talking about the end of a cartel here, so maybe that's the wrong take, but certainly it's a fracturing of the order that most of the oil trading community have grown up in.

A (34:20)

Right.

B (34:21)

And you know, and, and probably means more volatility and less orderly markets. It's now been a week since the, the FT and I guess essentially Iran is. The, the, the conflict in Iran with Iran is in the same place that it was a week ago.

A (34:38)

Right.

B (34:38)

With sort of a, an ever extending deadline on a ceasefire and coming to terms. What's your sort of take on it? You know, it seems like the world is sort of betting on that we might just be in this sort of frozen place for some time, but that we're not going to go back to escalation, is there? What sort of, what are you hearing out there and what's your take?

A (35:00)

That's real hardball one.

B (35:01)

Yeah, thanks for that. I mean, I could just not ask,

A (35:07)

you know, that's fine. I think it's interesting to see how markets are betting on different things. Right. You've got some equity markets looking like they're betting that it's not going to affect things. And then you're listening to people at the conference. I think Russell Hardy might have been the only one who mentioned the R recession word. But people are talking about recession and whether that's specific countries or regional or global, and everything isn't necessarily quite joined off at the moment. So that can make, I guess that can make things really difficult or fantastic to trade if people feel that they have the right view on things. But yeah, I mean, I guess everything changes on every tweet, right? Or every truth social post. I think like just to bring it back to the conversations that we were having, I do feel that there's a little bit of fatigue in the market. J mentioned on stage that it was, you know, they're seeing signs of burnout among traders. I think we've got, you know, some, some big trading companies saying it's sort of difficult to take a directional, like big directional bets on, on some of these markets now. So, so yeah, I don't, I don't necessarily think anyone has like a, a fantastic view on how things are going to go and maybe we're seeing that in the derivative markets, reflected in the derivative markets. Whereas the physical markets are still extremely active as people more and more the supplies get drawn down, the stocks get drawn down and people need to book new orders for products.

B (36:52)

Yeah, I mean I think it's pretty sort of on the human note here and the sort of the 18 hour, 19 hour world that commodity traders are working. I mean, I guess no one's heart particularly bleeds for the traders themselves as they're getting paid very well, but certainly the risk managers and analysts and mid and back office are being certainly challenged. But you're right, I mean I think it's kind of, it's fascinating times and no one can afford not to be watching the latest truth social coming out. But you know at some point that, yeah, it's, it's a challenging space. Well, it's been really fun having you on Archie, and look forward to getting your take and I hope you listen to the sulfur episode even if you're probably massively bored by sulfur by then.

A (37:42)

No, I'm super interested. So yeah, look, this has been super fun. Thanks for having me on. Excellent.

B (37:48)

Okay, well and we'll have you again in a year's time and hopefully, as I always say this, that the world is, is slightly more peaceful and slightly more predictable than it is today. Although our colleagues in the commodity trading world probably wouldn't agree with that sentiment.

A (38:02)

Well, look, yeah, fingers crossed. Thank you for listening.

B (38:07)

To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.global.