The Underbelly of the Global Economy: The Traders Who Buy and Sell the Planet’s Resources

[Music] uh thanks so much for uh coming uh I'm Jeff colan I'm the uh director of the climate Solutions lab and this year I'm the director of the road Center as well which is the real host of today's event uh and it is uh my very great pleasure uh to um welcome and introduce Javier Blas uh who is the author of this book uh the world for sale uh this is my copy that I got him to sign just about an hour ago but I have had this copy for quite some time because I bought it uh I read it cover to cover and then I started assigning it in my classes uh in particular my class on the geopolitics of oil and energy because it is so interesting and uh and so uh little known I I suppose it's like a window onto a world that is really important and yet many of us don't really understand uh and uh I think it's not too far too too much of a stretch to say that that jav and his co-author Jack farie uh are you know sort of the worldclass experts uh on understanding uh both the big picture about what's happening in the sector but also some some of the sort of fascinating uh fine grain details of it so uh hame is a uh a Bloomberg opinion uh column now covering energy and commodities uh based in London uh but he is uh formerly um the chief energy correspondent for Bloomberg and before that he covered uh Commodities and Africa for the financial times so he has this long uh pedigree uh pedigree um career in journalism uh uh which started in his native uh Spain uh and so please join me uh he's going to talk for about 35 is minutes uh and then we're going to have lots of time for Q&A and I'll ask you at that point I'll moderate the conversation but I'll ask you to uh line up and use the the microphones if you have questions uh for him but please join me now uh in welcoming him to Brown University [Applause] thanks oops uh thank you Jeff for uh your very kind introduction and also for inviting me here to to Brown I only arriv um yesterday and I have the opportunity to to walk uh through campus and enjoy a bit of the sunshine and and go to what I think that is called as the main green and uh and since then I have been plotting for ideas of how to get a professorship here with tenure if possible and and relocate right away with Pro to Providence obviously then today the weather looks more like London so I'm I'm now just kind of reconsidering my my my whole my whole attitude to it but it's it's it's lovely to be here at uh at Brown University thank you so much for for inviting me and uh thank you very much to all your team and particularly to alib Batten to make all of this possible and just make make sure that all the logistics were were working uh good afternoon everyone uh my name is jaier Blas it's my pleasure here to join you today for the third annual William Rose lecture series on the ethics of capitalism so um one housekeeping announcement before I I I start as you know as as Jeff explained my day job is with Bloomberg opinion but uh All My Views today are my own views and do not represent my company or my my affiliation so I speaking on my own name and and also I still acknowledge that a lot of what I will speak today over the next few minutes is based on research and writing that we did for the world for sale a book that I co-author with my colleague Jack fi so Jack in so many ways is is also responsible for this lecture although he didn't have the opportunity as he's traveling in Chile covering a mining conference today he didn't have time to edit my test so you will see this plenty of Spanish staff and and you know a bit of a Spanglish there and Jack will be absolutely terrified with it but uh anyway here there we go so let me just start um talking about Commodities and by that I mean all kind of natural resources that we uh use in the global economy obviously oil is the is the largest one and usually the one that gather most of the attention but when when I think about Commodities I'm thinking about everything natural resources it could be as fundamental to the global economy as the price of oil or even more fundamental to uh the life Hood of English people that is the price of tea there are two two Commodities that I absolutely need to pay a lot of attention on my job in London one is is oil and the really important one is the price of tea I mean that is the kind of thing that really gets Society going you are based in in London but my my fascination with this um with this sector with commodity trading started about 25 years ago as I was a wab be uh reporter wab be journalist um in in in a Spanish newspaper and I have just left college and my dream at that point was to became a foreign correspondent that's what I wanted you know I was more than a foreign correspondent I wanted to be a war correspondent perhaps I have spent too much time watching movies about reporting uh and and and journalist I mean you know all the the the Watergate case and uh perhaps I I I just watch to much the year of leaving dangerously and I thought that I have the looks of Mel Gibson on when you know the J One I don't know what it was but what I wanted to be was a war correspondent and that's that's um that's what I wanted somehow however I ended on a business newspaper on the early shift writing about the CPI data industrial production and a very important indicator you are covering the Spanish economy which the number of people who have slept on a hotel over the previous seven days so I was doing that I was feeling quite miserable with myself and one of my uh friends from University and probably drinking companion at that point said to me why why you don't just write about oil because you want to be a foreign correspondent if you write about oil you will go to the Middle East and they're always works at the Middle East so you you you're going to be fine uh this was 1999 and amazingly the price of oil at that point was under $10 I check earlier because I was with a group of students which are interested in journalism what was the price of gasoline in the United States at that point when I joined my newspaper the price of gasoline was $17 per gallon $1 1999 how much time has change um no one was very interested on my newspaper about oil so I effectively my editor said or you could do oil on your spare time as long as you are covering you know all those indicators that you are covering but he said no one is really interested in oil it's all about internet these days so why you are interested in oil I well you know it's the Middle East and so on so anyway anyway they accepted and within a few weeks I ran the the local oil company and I said look I'm I'm interested on how you guys buy crude oil I mean what is the process how you how you get the crude oil and how the barrel of oil gets from say Venezuela or Mexico or the Middle East into a Spanish Refinery and then gets you know gasoline and you know people go to the to the gas station and they fill the cars and so on and astonishingly uh not only they explained the whole process but they said why you don't come over and spend a couple of days on the trading room and and see how it's done I mean that would not happen today I tell you that oil company doesn't invite a journalist to see an oil trading room these days but anyway so I I went to the oil trading room in Madrid and that's the way that I ended for my whole my only time on my whole career buying a full cargo of oil two million barrels of oil I mean all said I I didn't really buy it the the trader bought the cargo but I have a second hand set and I was on he was on the phone I was on the phone and he was chatting with a Trader of the Iranian Oil Company when it was legal in Europe to buy Iranian oil the guy was in Teran and they hug about the price and you know it's a few cents up or down and so on and and I'm listening and I just absolutely mesmerized that they are talking about buying two million barrels of oil over the phone like you know who orders pizza uh and I was like wow this is absolutely incredible and at some point um they reached a deal it was about 20 million worth two million barrels on a what this call a blcc very large crude oil carrier what we call a super oil tanker one big tanker and and as I'm listening one of them says do we have a deal and the other say we have a deal and it's like well thank you very much it's a pleasure to do business deal is done and I'm like what do you mean and what do you mean the deal is done I mean say and then the person tells me we just b 2 million barrels of Iranian oil that's it say how say well he said do we have a deal we agreed on prices and conditions he said we have a deal I say agree and that's it I'm like what do you mean this is all done on over the phone I say well that's how it works we do things and you know it's an industry that my war is my bone we have done a deal so don't worry they're sending confirmation in writing by Telex this is prefa for the younger people a pre- email and and and and and certainly a Tex came and you know uh the Iranian National oil no in the name of God almati the Iranian National Oil Company wishes to confirm it's simply a confirmation the deal was already done I have that Tex Ste is frame on my my office at home home and I have the details of the transaction the data I bought 2 million barrels of Iranian oil don't tell uh US Treasury please or I will never come back to the United States anyway but I was fascinated because I kind of discovered that it was a wall a business wall an economic wall where dozens of men I'm sorry it's still a wall that today is dominated by men very few woman sadly working in this industry that they were buying and selling cargos of oil and other Commodities over the phone making businesses who have huge economic implications for local economies as the exporters and local economies as the importers and it was a fascinating War full of fascinating characters entrepreneurial and Charming also ruthless and immoral if I was to think of on Hollywood terms how a an oil Trader look like what the characters of movies that we all know look like well I think that the archetypical oil Trader will have something of 007 James Bond certainly the adventure the you know the the the political Intrigue the geopolitical play it will have something of the Wolf of Wall Street because you know it's this ruthless character driven my money and basically nothing else it will have perhaps something of Pirates of the Caribbean you know the the pirate of Pirates of Caribbean I forgot the name but kind of that character but also something of Mony ball these these guys really know their business they are extremely analytical they don't really this is not about you jumping on a plane and getting a deal they really think all the number through etc etc so for the last quarter of a century and that's that all I'm inan the gray hair I have just kind of devoted myself to to find out about more of these men and few woman who are the community of commodity traders that effectively um you know I I say sometimes run the global economies the the the commodity traders that buy and sell the planet natural resources and they are a bit of the underbelly of of the global economy whether we know it or not we and including everyone in this room we are the customers of these commodity Traders we we take for granted the ease which we fill up our cars with gasoline by an aluminium case for our smartphone like my iPhone or order a a a cup of coffee of Colombian origin but all of that all the modern economy is is built on on natural resources and for that underpinning all this consumption is a frenetic trade in international Commodities and the people who are underpinning that uh trade is what we call the commodity Traders the trading houses the independent commodity Traders they are mostly in Switzerland um sleepy towns in around L Lake Lemon Geneva in particular they are here uh nearby a big community of commodity Traders around grenage and and Stanford you take their Cella you may see the then on the first class compartment um they are also increasingly in the East um Singapore uh Dubai certainly Hong Kong Beijing and more and more Shanghai without the commodity Traders gas stations will run out of fuel factories will green to a hall bakeries will not have flour they are I call them the kind of the lubricant that grees the global economy uh few people including in business know uh their names know what they do they are companies like beol the world's largest oil Trader uh Cargill the largest probably company probably owned company here in America and the largest Trader of agricultural commodities uh glenor the largest uh metal Trader and on aggregate the the company that trades more Commodities in the world but there are many others perhaps um some of them more famous than others you know you have trafigura in metals goomber mercuria in oil ADN l draus buoni in agriculture there are huge companies huge revenues employing lots of people very few people know about them uh when I started writing about them a lot of times uh I need to to explain to my editors the size of these companies to really get their attention because they're like why are we writing about a company that we have never wrote about that no one really knows by name uh why we are writing about this so just let me give you a a few you know fact toys as I will call it about the these company I mean let's start with beol know largest oil trading house um owned by the staff privately owned profits of more than1 billion a year for two consecutive years and they trade this company alone trades more oil that the combined consumption of the leading economies of Europe bitol can supply singlehandedly the economies of Germany France the United Kingdom Spain and Italy and to aare and very few people know about them what about Cargill Cargill is an American company known well if you are coming from the us Midwest Le less known outside the the Midwest do you have a sense of how many employees work at Cargill worldwide without using Google anyone want to guess how many employees this company that prob you have never heard of guess while guess anyone Jeff 80,000 it's 160,000 wow it's double the amount of employees on the Coca-Cola company just to put a a benchmark it is a huge company $7 billion profit owned by two families Lan by marriage many many generations ago but effectively you know the Carill and MCA the Carill and McMillan families they they got together through marriage so let's call it the family that owns Carill counts 14 billionaires within the family so you know Uncle Carill and Auntie Carill and the cousin their knes and so on there are 14 of them with more than a billion dollars that's the largest number of billionaires in any family in the wall outside the Middle East royal families again very low profile very interesting company or a company that you probably have never heard of noyman group German company probably on by the noyman family for every 10 cups of coffee that you drink at at least one the beans were trade by the Norman Family largest coffee traded in the world based in Hamburg again completely low profile completely is one of those almost invisible Giants of global business that no one knows about very profitable uh about 75 100 years old um very interesting companies as as case studies and and what about the profitability of the big Traders well you look at uh 2022 data which is the last uh Financial year which we have uh complete data set for for uh a lot of these companies and and also because a lot of them are privately owned they they don't release publicly their financial so it just requires certain imagination from journalist to to get the data it's possible to get it but you know it requires a bit of an effort but um so let me just give you the the the four big ones beol glenor traffic and Carill they made in profits in 2022 a combine of $50 billion just almost $50 billion 40 and a bit that's more or less as much as Exon made yes Exon is a single company here I'm putting four companies together but it gives you a sense of size these are very significant business but the different of Exxon which is own by millions of shareholders through Pension funds Etc ET publicly listed company here we are talking about these three the four companies that I mention only one is publicly listed glenor the three others are owned either by families or by their own staff I mean these companies are full I mean the CEO usually is a billionaire the CFO is a multi-millionaire uh the reaches of these companies are are just just spectacular so uh and there is also a very important consideration here there is hardly any regulation on this sector uh physical trading is beyond most uh national uh jurisdiction often it happens on the high seas where no one is looking at it or regulating it um Banks tend to be quite regulated uh financial markets are very regulated so there is a a sector of commodity trading that is quite regulated with the financial side of it but the physical side where people are buying and selling a cargo of oil a cargo weed cargo of copper that is hardly any regulation whatsoever and there is not an international body that is in charge of this sector there is not a World Trade Organization there is not a un um uh organism that will just kind of keep an eye on this I mean one of the most um worrying aspects of commodity trading recently over the last few years and Jeff was very generous Calling You Know Jack and I experts but in some ways when we publish the word for we kind of became the go-to people to to ask questions about including from central banks and I always on on government officials I was a bit worried would say look I'm a journalist I I I wrote a book I I I I you know if I know something I usually publish it you you surely you have better people to go to ask questions I mean you are a government official you should really have better people and and the answer was no and that kind of an indication of how little regulation it was and how uh surpris uh govern officials were when they started looking at the profitability of some of some of these companies so what commodity Traders do exactly and and and what why we do need them I mean at the end of the day they're just buying and selling how on the era of Amazon and eBay well we don't do this on a different way and we don't we don't use all all this complicated I mean the basic business of a commodity Trader is is what I call disarmingly Simple they buy natural resources in one location on time and they sell them in another location on time and they hope to make a back on that transaction you repeat that many many many times millions of times and then you will be you will be making a very very good business you get it right that the key one is is getting it right because this is also a a pretty um you know Risky Business the role exists because supply and demand in Commodities rarely match in real time the market always is either over Supply or under Supply over time obviously when you look at the space of a year the market may look imbalanced but we may have over produce a commodity during the Spring and then overuse it during the summer and and then changes on the Autumn and the winter and so on so you need someone to balance the flows of the Commodities that have inventories and that they can move things around there are times where commodity demand may be weaker in America but stronger in China and vice versa you need someone to redirect the the flows and that that is the the Arbitrage that commodity Traders uh do because they are doing multiple deals and they're buying and selling they are generally uh the the price of the commodity itself is irrelevant to them they don't care whether prices go up or down they focus on the price difference between times and locations and qualities but they don't make more money when prices go up or less money when prices go down indeed at times a commodity that is going down a market that is going down is extremely profitable for commodity Traders because they could play a storage deals which are very profitable uh and we saw that during one of the best years of the commodity trading industry was actually 2020 during Co they make huge amounts of money buying oil storing oil everywhere that they Co including Torin on super tanket into floating facilities uh president Donald Trump referred to it on the White House I was absolutely mesmerized by when he talked about these deals what we call contango play and and he he kind of struggled explaining how how it worked but but effectively was so amazing that even the president of the United States referred to them on the podium on the White House and and they kind of uh you know the the the kind of the LW indicates the fame of the commodity traders that they are speculators and they make make their money only when the market goes up they're profit sharing the reality is that a a beish market a market that goes down what demand is collapsing could be extremely profitable to to them but is by exploting these price differences what they make their money therefore they make markets more efficient the global economy benefits uh and they get paid to take that risk that they are taking at the end of the day they are putting their Capital At Risk to move all those Commodities around the wall and that needs to be rewarded we can discuss whether the reward is too high whether the taxation is high enough there is a very interesting consideration on these commodity Traders uh even they are very there is very little regulation of the sector they have choose to locate themselves in jurisdictions where the regulation even is more LAX or there is an absence of Regulation so you you see that they are located mostly in Switzerland very few in the United States uh Switzerland Singapore Dubai Shanghai uh locations where not only regulation is lacks but taxes for commodity Traders is very low low uh Goldman sa comes to play pay a corporate rate on average barriers year to year but Goldman s which you know I would think that it has a very good tax department that runs the business in a way that they pay as little as they can on taxes but they come to to pay something around say2 to 25% uh tax rate commodity Traders typically pay 10 that's uh how good they are there is a trade unit a commodity trading inside sorry let me put it this way shell the oil company has a commodity trading inside shell buy and sell oil inside that commodity trade unit of shell there is even a smaller unit which is located in the Bahamas and the tax rate there is zero and their profits because they have to disclose it for a number of reasons runs about a billion dollars a year so shell has a trading unit in the Bahamas which buys and sell West African crude oil you will wonder why you need to be in the Bahamas to trade West African oil but that's another question and the tax rate that they pay is zero and they make a billion dollars and that small unit employs 35 people which I think that the most productive 35 people that any oil company employs anywhere on the planet despite all that perhaps you could be thinking oh my God this is really sounding bad we do need the commodity Traders the global economy will not work without them they do take race they benefit Society they benefit the global economy so the question is how to make sure that the business is done properly there is a very important aspect of commodity trading that goes beyond business and economic iics and goes into politics because to understand the interplay of money and power to see how oil and other Commodities flow from resources rich countries no matter how corrupt or World torn into the world's Financial Centers you need to understand the role that the commodity Traders play at the center and it is really a role that goes beyond the economics and have a a political impact they they they had a bit of a throwback of what I would call a bygone era they are ruthless Charming but they land deals where competition will not go uh I say that they are the last sh bucklers of global capitalism um the appetite for going uh anywhere um sometimes also gives them a bit of a post Imperial or postcolonial air they are overwhelmingly white men the top of the companies uh they do business mostly in uh from Western capitals from Europe and the United States in countries in Africa the Middle East and Latino America buying natural resources um for most of them the wall is their their natural place I mean the wall is where they do business where and how far they are prepared to go it various depends of the appetite side of of each of the the companies some of them are very happy to uh work in uh industrialized countries and the the more developed emerging countries some of them are uh willing to go anywhere uh in the merging Market world and for perhaps the most buccaneering of the commodity Traders the seal for business opportunities extend also to war zones which often are very profitable if you are a commodity Trader so how is this Interlink between politics and commodity commodity trading well I give you a few examples in Iraq in um the late 1990s and early 2000s the commodity Traders helped Saddam Hussein to sell his oil by passing uh United Nation sanctions in Cuba they swap sugar for oil for Fidel Castro helping to sustain the revolution afloat when he was in trouble after the collapse of the Soviet Union in South Africa during the warst years of upper head when uh the Western most Western countries have put Quasi embargos on on the on the white racist government in uh ptor the commodity Traders were the ones who Supply the government of South Africa the the upper head government with the oil that otherwise would not have got and probably they prolong some people including within the commodity trading industry they believe that they prolonged 10 or more years the upper he regime and more recently a new breed of commodity Traders uh with names changing almost every week when the US Treasury sanction one another one is created new commodity Traders are helping Vladimir Putin of Russia to continue selling his oil well above the G7 price C making billions of dollars from the Kremlin which are obviously being used to finance his aggression and war against Ukraine uh and uh these are not some of the commodity traders that I was talking to you earlier they they they they don't go as far as as getting with Vladimir Putin now but they are a new breed of commodity Traders we know very little about them we don't know who is behind them they're acting with shell companies in in uh upsource centers but some some of them have interesting names the most popular and bigger of the new traders who are dealing in Russian oil is called Bellatrix which my 10-year-old niece tells me is the body of har reporter um to write uh the word for sale we spoke with dozens of commodity Traders many many of them retires and uh let me recount to you a story that we heard from one of them it was a senior Trader um based in u the former Soviet Union and and and this company in particular uh it was Mar ra and glenor two companies there um were doing a deal Finance in the government of Tajikistan is one of the former Soviet republics Border in Afghanistan in the early 1990s Tajikistan so perhaps the bloodiest uh of all the Civil Wars of the disintegration of the Soviet Union it was really really bad and aluminum alumin aluminum you say aluminum here aluminum or aluminum was the main commodity and the main source of main source of income for the government was fighting the the Civil War but he needed a MTI Trader to effectively uh the promise of delivery of several months of aluminum and getting the cash in advance so a commodity Trader accepted just in mind just doing a deal with a country that is in the middle of a Civil War and seeing that as part of your normal business and and and offering Credit in advance on a country that is on a on a Civil War I mean when I when I I I was getting my mortgage for my house I had to do so much paperwork and have gotten a payment from JP Morgan from my my book actually royalties from America and the bank really question every every small amount of money that was going in the account and here you have commodity traders that a bloody a Civil War in Tajikistan and this is good business I mean they are in a complete different world but this this uh this Trader we were talking to him and say so how was it when you were financing a a government was fighting a a Civil War and you know thousands of people were dying and we were expecting you know a response on the on the sense of how difficult how dangerous how um you know how perhaps with h side was not a really good idea to do that and what he said and this was on the record quote unquote it was a stunning business actually because it was a civil war it was a little bit risky but we made a lot of money I mean you you see you see the difference and um uh commodity Traders often get into those sort of deals one of the most popular deals in oil trading and physical trading is um lending money to a country um and uh in advance of future deliveries of oil it's called a prepayment and the the the oil the future flow of oil is the guarantee of the deal similar to what a house will be the guarantee of a mortgage and uh countries can get Finance but they need the money just effectively in some way just bartering future production from immediate access to cash these deals which are now very very done very very often have been used in multiple locations uh but the pioneer of these deals in the 1980s was Mar Rich we consider the Godfather of the oil industry and the place where these deals were done abundant were done first in a significant scale was in the early early 1980s in Angola where the angolan government was fighting also uh the communist government of Angola was fighting a Civil War which also brings a an interesting I mean these are the most capitalist Executives I have met on my life they nothing nothing will deviate their their cause to make money and here they are financing a Communist Regime back by Moscow in the 1980s on a civil war but they don't care about political colors I I was talking to one commodity Trader and I say so so what what about you know politics I said I don't care red blue they're all the same I only care about one color I was expecting I don't know what is the new color green the dollar that is the only thing that really matters for for for a commodity Trader uh do you remember the the oil TR that I told you at the beginning that I was just listening as he was buying the 2 million barrels of of Iranian oil uh a few years later I think it was two or three years later about that conversation I bumped into the same Traer um and I was in Baghdad 2003 January 2003 the invasion was going to happen only a few a few weeks later and I I saw him on the on the lobby of the hotel and I was like goodness what are you doing here so well um you know have a few meetings and uh doing a few things here uh you know but just just only a couple of days and I'm I'm leaving he was obviously there buying oil from the regime of Saddam Hussein and literally this is uh this is just six seven weeks before the boming starting to fall on back that this is the kind of business that when I say 07 James bone a bit of the character it's just because you know uh the lobby of a hotel in a in the capital of a country that is going to be about to be in bade or is about to go in a civil war or is in a civil war is a natural place for some of these uh commodity Traders and you know we we can't look from our position here uh and saying well is any morals on it is any ethics on it um but at the end of the day um um you know we are all using their services and we are all consuming the natural resources that they are providing let me uh uh as I I'm going to go um about six minutes more let me just give you a a a a bit of a um a quick historical summary of how the industry develop and then we will go a bit more on the on the ethics of capitalism uh in the industry in commodity trading obviously is is as as all as as as um as mankind uh you know we we have uh since since the early days we have barter trade uh grains and metals and Stones uh for for other for other Commodities and later for for money indeed the tendency to track and to barter to trade is seen by Anthropologist as one of the activities that Mark the beginnings of of modern human behavior uh over centuries that trade grew in both size and and complexity and um the first commodity trading companies as as perhaps we can uh Define uh from from the perspective of 2024 it started to emerge around the 16th century uh one of the first ones was a a German family called the figures which made uh a lot of money trading on copper and mercury and financing the the Spanish Crown in some of these uh not so nice activities in in Latin America um another example of those early days again a not particularly a beautiful example is the East India company that effectively run the South Asian um subcontinent for for many decades but the the history of commodity trading as we know it now uh only took shape after the Industrial Revolution thanks to advancements both in telecommunication and Transportation uh those Advan changed completely the way that commodity trading could be done um in 1858 the first Telegraph line um across the Atlantic open uh and is an amazing development it cut the time that took to deliver message from London to New York from two weeks by pesel to minutes just in mind that you could do an order to buy or sell previously you you have to send a letter put it on a on a on a boat across the Atlantic and then you have a telegraph line and within minutes you could transmit the the the message some of these commodity trading houses have historically some of the best telecommunication networks of the planet uh Mar uh sorry Philip Brothers which was one of the big companies uh claimed that they have the second in the 1960s they have the second best uh telecommunication system in the world the first one was the Pentagon they claim that have the second best one and I I do believe that probably that that was true I mean they really invested heavily in in telecommunications um the other big invention obviously this the the steamship uh for the first time that meant that you could do commodity trading over long distances not just at the mercy of winds but using coal as your source of of of fueling and that meant that the cost of Transportation fell uh significantly and not only tea spices and precious metals were worth transporting over long distances but anything else from uh copper to to grains to uh much later obviously uh oil um a great number of commodity trading houses were born during the 1800 uh some of them are champ of the industry today Carill for example was founded in 1865 only seven years after the that first Telegraph line across the Atlantic was um uh put in practice but um it's really after the the years of the second world war where the modern commodity trading industry as actually we know it today was was kind of developed and and perhaps is the first industry early and that I will say that banking that uh not only took uh uh and benef took advantage and benefited but I think also shaped globalization I think the commodity commodity trading perhaps is the first industry of the globalization and really did a lot to create the the globalization uh there are four big trends over the last 75 years that they have contributed to the development of the industry as we know it um the first one was the opening of many markets that they were previously vertically integrated control by a few companies uh above all the the oil Market uh which was previously effectively controlled by seven companies we used to call it the Seven Sisters and uh in the 1960s you could barely buy any crude oil on the international market by 1973 was almost a freefor All By 1979 the market was completely open to commodity Traders um the second uh big development was the collapse of the Soviet Union uh which open uh a complete new market for the capitalist system uh but also a market that was a large producer of many Commodities and Russia by the the time of the collap of the Soviet Union was one of the largest oil producers uh was a significant produc or aluminium and number of other Commodities and today Russia is again one of the largest producers of many many Commodities from wheat to um nickel uh natural gas oil um the third development was the rise of China obviously from the mid 1990s onwards but particularly during the first decade of the of the current century and and China is absolutely amazing it when in 1993 China was a net exporter of oil it was indeed selling quite a lot of oil into the United States and there were some trading companies here in the United States which have developed a very nice niche market for themselves buying Chinese oil for refineries in the west coast of the United States to today China is the world's largest importer of oil you know in in use uh less than 30 years how much has changed and the four and final Trend was the financialization of the commodity markets and also the growth of the banking sector and the commodity trade Finance sector um particularly from the 1980s on I mean looking at at at oil trading in particular from the perspective of 2024 this may sound completely unvailable but uh until the late 1970s uh the sorry the that's my my timer uh until the late 1970s the main commodity traded at the New York Mercantile Exchange was not crude oil indeed the first uh crude oil Futures Contract was not launched until 1983 does anyone know what was the most popular commodity trade at the New York Mercantile Exchange in the 1970s any wild guas the commodity was the potato of Maine and when the market for uh potatoes from Maine was Corner in 1976 the story made the front page of the New York Times I I I don't really think uh that um you know that that is just such a big change from from today let me let me go to a a bit of the ethics um when Jeff suggested that I came to Brown uh University to speak about commodity trading and the ethics of capitalism I must confess that I had to reach for the dictionary English as you see is not my first language so I I have my my my dictionary uh always close by at home for these these these issues ethics what exactly means ethics in English I really needed to check because I was not sure the context of commodity trading so the Maran Webster dictionary I keep at home says that ethic is a set of moral principles a theory of system of moral values well I thought to myself that's going to be a bit of a problems because there is not such a thing in commodity trading of a set of moral values is just making money and move the Commodities so how how I'm going to talk about this uh look uh the industry has had historically a big problem and it has been endemic corruption on it um bribery money laundering just plain corrup coruption and also Market manipulation this are something that the industry has denied for long uh and and you know some commodity Traders were quite open about this um when we spoke for our book with toron tomis which is the co-founder of of goomber group one of the world's largest oil Traders he said to to us there are a lot of skeletons and many many of them most of them will never be surface I mean when when the CEO of a commodity Trader tells you that there are many skeletons I suppose that he knows about it it has taken quite a lot of time for those skeletons to to to reappear it has taken a lot of war from the FBI in particular and the US Department of Justice but um now those those skeletons are being surfaced and it's a bit of a graveyard of bribes paid to government official on return for for very lucrative contracts um we know that thanks to um uh uh the the the war of of the FBI and the and the US Department of of of Justice uh five of the largest commodity Traders have admitted over the last three years that they pay uh bribes in the p uh in one case as recently as 2020 and only they sto because they got a subpoena from the US Department of Justice and they found themselves under investigation so they have they have to to to stop I mean obviously the industry disagrees with my my view that there is a lot of corruption in it they say that this case represent behavior of the past and it's true that in some cases one of this bribery happened a decade ago or so and maybe the companies have have changed but I mean I think that those protestations of Innocence will be a lot more convincing if the same firms hadn't made the same claims before all as they were paying the price as we know now and also some of the firms which got uh and they plead guilty uh on charges of bribery recently it was not the first time that they got uh caught by the US Department of Justice it was the second time that they have been uh God uh to me and perhaps you have been following this on on Bloomberg and other news organization the big ey opener was recently the trial of Javier Aguilar uh a mid-level executive Abal group as I told you the the um the the the world's largest oil oil Trader uh agilar has just been sentenced to as many as 30 years in jail uh after a jury delivery that guilty bar his he his lawyer has said that he plans to to appeal uh and and the case has literally everything it was three weeks in federal court in Brooklyn and you could in mind this this was for a for a reporter who follows commodity trading this was like a Netflix series I mean literally live there everything that you wanted to know all the depositions all the witnesses all the FBI wire TS Secret videos it was backs of Cs expensive watches clandestine meetings very profitable deals and above all of it Bry bribes and more bribes at one point uh one of the attorneys as um it was a bit beus because he's just realizing that they were bribing everyone and and he said but you you were not trying to brive the Secretary General of the president he refers at the the the the effectively the chief of staff of the president of Ecuador and and the witness says oh I intended to do it yes I they were literally going up to the to the the the the the the very top there was a a couple of really CF moments and and the in the trial the the jury preceding is a federal judge who has done several cases of Mafia deals and and he had to ask uh the attorneys to a slow down and and said uh there are so many conspiracies here I want to make sure we are in the right conspiracy as we are discussing the case full disclosure as we are talking on the the agilar case uh in during the because someone could see me as bias on this particular one uh during the trial uh the prosecutors play a tape of a FBI wire tab where it was just you know secretly recording the phone of of of this uh oil Trader and he can be here referring to me as the um so I am not bias but I thought that you need to you need to know that um look the the the agilar case was explosive but there were many other lawsuits over the last few years about about 15 lawsuits against commodity Traders individual Traders um uh intermediaries of the Traders and and and the landscape that emerge is one where where Bri were paid as normal course of business uh there was one particular example that it was really shocking to me which glenor was largest Trader in 2011 South Sudan has just won independent is a country that is barely a few days old as an independent country and what the oil traders of glenor are doing they get a private plane out of uh Switzerland they fly to Juba the capital of South Sudan with a million dollars in cash and they pay bribes I mean just in mind the first thing that the oil Traders think this country has just G won Freedom after a civil war with the neighbor on the North a few days only I mean literally it's less than a month and the oil Traders are already there paying the price um there are of course uh expensive watches the Philip PCH etc etc and and and and it's not just one or two cases I mean on the last few legal cases that we have seen only in the United States there were briy payments in Venezuela Mexico Brazil Angola Ivory Coast Republic of Congo Nigeria malagi Cameroon Ghana Equatorial Guinea and South Sudan I mean that is quite a long list and when they said to me well these are isolated examples I said well for isolated examples you really are driving half Latino America and the other half of Africa so I I uh and and and and a big problem here is that um we are not doing enough to uh make sure that this don't happen ever again the the fins are not strong enough people are not yet going to jail and when some people are going to jail is the Junior and midlevel Traders not the CEOs at the at the top of the companies are the sanctions strong off well uh not really uh when uh goomber recently uh was sentenced uh in Switzerland the fine was 4 million Swiss France that's about $5 million I mean for a company that regularly makes a billion dollars in profit you will see that that's just as some people will put at cost of business but is also interesting this is uh this is Improvement until 2012 in Switzerland was not only legal to pay certain Bri overseas but also the cost of the Bride can be used on your as a tax credit you you hear that well until 2012 bribes in Switzerland were tax deductible just in mind that you are just filling your corporate tax record and um you know we just pay some Bri in you know I'm going to use my home country as Spain we pay some countries some BR bribing some um business person in in Spain here is a million dollars and um you know we are going to take a tax credit here so the the new the new the new regulation are a bit of a an improvement I I finish uh emphasizing the need to reform the industry and increase the penalties for groing because um this is an industry that is absolutely necessary for the work of the global economy for the world of society but there's also an industry that is going to play a massive role in the fight against climate change and the energy transition we do need commodity Traders if we are going to get the commod the energy transition to work at the moment a lot of these commodity Traders are the channel That links producers of fossil fuel with us the consumers in the future these same commodity Traders will be needed to be the channel where a lot of the uh critical minerals uh and the electricity is traded and they are taking positions if you think about glenor world largest commodity Trader it is the largest Trader of coal today it is also today the largest Trader of cobal the mineral that is essential for the batteries on Teslas and other electric vehicles so they have both both hands in the in the commodity and the energy transition both on the fossil fuels and on the new Electrify everything we think also about electricity the commodity Traders are going to play a big role as as we Electrify everything we bring more renewable generation that's solar and wind that only comes when the sun is shining and the wind is blowing so we need a commodity Trader to smooth out the ups and downs of the electricity sector and for that uh we we are going to need then uh I think more than we needed before uh but uh for society to be able to thrive we need that they are reliable but we also need that they are honest and with that I will stop thank you so much and Jeff [Applause] cop um so we'll just share share our mic I'm gonna um invite uh questions from the floor but I'm going to kind of kick things off by just asking uh one or two uh to start so please by all means if you have uh one um think about what you might like to ask Javier so the question that I I want to start us with is I think you really nicely lay out how this is an industry that has a kind of legitimate space as a lubricant of the global economy me and then there's also a part of this industry that is like clearly off limits like flagrantly you know uh the more lubricant side yeah I mean they're flagrantly disobeying like sanctions or they they've got I think at one point in the book you talk about how they have these stamps that uh are custom stamps to to authorize uh you know uh shipments across borders and they've got you know like in a filing cabinet they've got like a bucket of these stamps that so they can just do like fake stamps wherever they need to go okay so those are clearly like not okay but what about the space in between uh and I wonder if you could just imagine that you've got you know in this room you know Joe Biden and you know the chancellor of Germany and Shing Pang and you know the whole set of of policy makers in front of us and they say Okay Javier what do we do like what do we do to constrain that gray space how do we the first thing that you need this data I mean one of the big problems that right now we have with commodity trading is that we lack a lot of understanding of of the industry I mean mat that I'm proud on the book that this is seen as the best source of information it is an indication of how how how lacking the data is and it was very interesting uh during the European energy crisis in 2022 the bank of England in particular did a bit of work what was happening in commodity trading markets and and a lot of what they got back was opacity we do not know what what's going on simply because we don't have the data a lot of these companies are privately owned they don't have any obligation to provide any information and to me that's quite scary because as a central bank effectively saying we do not know what's going on nothing is worse that the what was it the unnown knows and this was a basically so the first thing I will say is um we need better data we need uh governments forcing of these companies to disclose information um there was an agreement by the G7 uh to make every oil physical oil transaction to make it public on a on a public register uh similar to what we have now for swap uh for for some Financial deals where everything gets aggregated and provided so Regulators can take a look and the G7 agreed that that was going to be the case that physical oil transactions will be go into a registry the agreement from the G7 is from 1979 and it has not been implemented but it was agreed all the countries are is to the communicat on the on the Tokyo G7 meeting I think actually it may have been a G6 rather than a G7 uh but but you know so some of the things that we need is just Implement actions that we agree 40 years ago if we get that then we can't start to understand the sector we can understand who is trading what and then we can you know we will have a lot more transparency and then we can see whether policy action is needed whether are we missing something I will say that um taxation is another area I mean minimum taxation levels the oecd is working on this but it doesn't seem fair to me that um that commodity Traders pay half of the taxation that other companies are paying when they are operating in some cases for similar jurisdictions so that will be also a very important area great uh thank you so much okay so I'm going to ask my second question and then I'm done so it's all up to you you guys uh in terms of what we talk about uh but I'm going to shift from the ethics question to the the climate question uh and I guess I'll make this as simple as possible when we see a company like glenor or some others uh glenor hasn't done this but some of the other ones have said okay we're out of coal Coal is like too much trouble it's too bad for the climate do we want that or does that simply push the coal trading business to somebody that's even shadier even farther behind you know underneath the radar what how do we read those kinds of statements uh well unless you suppress the demand uh the the supply is going to continue to flow it just moving I mean we have seen with oil and coal in particular has been an increasing number of the production is moving into what I call the Shadows companies with less regulation less transparency from public markets into private into private hands I don't think that that's particularly good I think that I I I would rather have uh coal producers listed on the New York uh New York Stock Exchange and and financed by uh Wall Street Banks where I'm going to get information I'm going to be getting a lot more transparency and and perhaps investor pressure could contribute to to do better production uh better mitigation that all of that production moving into private Equity or or family own companies where literally we don't get any information whatsoever but commodity Traders are getting more to call as as as other public markets get out the commodity Traders usually step in they see as a natural business they see still the demand I mean the main problem with Co is that we have been talking about uh reducing demand facing out etc etc and Co demand this year in 2024 is going to hit an alltime high okay questions T please thank thank you very very interesting um would you mind using the mic actually yeah thank you and and you should say who you are because you you have a little bit of expertise on this subject uh not on commodity Traders so much but on Commodities in other ways uh yeah so I'm theore of Francos I work um I guess right now I'm writing a book on the lithium sector so I'll just set that up as a that relates to a couple of my questions I have two I think they're kind of connected you can also just take one if I don't want to uh dominate the space too much um but I've read your work and followed you and so I'm really interested in what you have to say on these two pieces so one is lithium and you correct me if I'm wrong and this may also apply to other critical minerals though it sounds like not Cobalt you do see some of the big commodity Traders moving into lithium but overall most lithium deals are these off take agreements directly between the the let's say the the lithium minor and the and like the company that's buying at the battery maker the EV maker so you don't see the daily the daily trading you see these like 10year things and I'm wondering if you think that's going to change there's been a push to like basically bring lithium into commodity trading through the lme that hasn't really taken off and I'm just curious is it the market size is too small it's too volatile like what's preventing a market like lithium from being brought into this world and keeping it in this kind of older off-take kind of World um and then the second I guess relates to Nickel but it could relate to anything uh I mean it's ni nickel's just an easy recent example I it makes sense that you're saying the commodity trading kind of creates elasticity in the market and therefore creates balance over time but also we see all these moments where it does the opposite right and the famous thing is like the recent nickel runup a couple of years ago that created a tremendous crisis for again for the the London Metals exchange um and where you had this like dramatic increase in price due to a short sell position but regardless not important but there are many examples where quantity training creates volatility rather than smoothing it so I'm just wondering what you think about that um cuz you sort of referenced those arguments and dismissed them but I'm curious if you if you think there's something to that so thank you thank you not two excellent questions and uh just let me start with nickol and and just perhaps for for others in the in the room what what happened there effectively is the nickel price went from something like canot remember the numbers but something like $20,000 a ton to more than $50,000 a ton in the space of a day and a half the market had to be shut down down it was extremely controversial a lot of big Banks were financing position etc etc it was a typical squeeze um some one was betting on the short side so the prices were going to fall the the market started to go against that position uh he had to buy back uh some of the positions because he could not cover the the what we call the margin cost the margin requirements to sustain his positions and it was just a complete meltdown of the market and it's one that it's going to is still on going and it's going to be quite a lot of L lawsuits on on it and you are right I mean in that case in particular I mean certainly uh commodity trading was adding to the volatility I mean it was funny enough it was because someone was betting that prices were going to fall that the market ended just having the most spectacular rally that we have ever seen I mean the chart of nickel would just literally goes vertical to the Moon um but if you look at I'm a skeptical on financial commodity trading adding to the volatility because if you look at non-f financialized um metal markets both feros and non feros you see very similar price increases I mean iron or only now is developing a a swap Market have seen massive price spike uh going to you know more than $200 a ton and that's a physical Market without any kind of financialization so I I'm I'm not sure that I I buy into the argument that Financial commodity trading in part particular the the the use of derivatives add add to the volatility and we have seen a number of Commodities that have gone um well stratospheric in recent um weeks and months uh that they don't have a financial Market I mean one that is no Metals but is close to home because it's the market for olive oil and Spanish extra virgin olive oil which is what we consume at home has gone uh from effectively about $2,000 a ton to $10,000 a ton because of a drought in the Spain etc etc there is no Financial market for olive oil there is just a very small commodity market and still has happen so um I can see that there are arguments where there are times where uh Financial factors do play a big role nickel was one Coco is a is a market where we are seen that ongoing and very similar also people who are hedge we have a short position on the financial market and now they have to buy back their positions because they they cannot meet the margin cost s so there is an addition of volatility at times but I would not think that just generally increase prices as a as a as a general rule and in lithium uh again you are absolutely right LM has been London Metal Exchange has been trying to create a market I think that the biggest obstacle here is that a is a relatively small market in terms of value uh nothing compared to copper and and aluminium and also the main interest of lithium is not much as the raw material the commodity but the semi-processed lithium that goes into the batteries and I think that uh the Traders then they don't see then a role because it's already you need to have significant chemical processing facilities to do that lithium to refined product semi-refined product that's where the value is rather than trading the the the raw material um uh and they see also a relatively limited market for on the buying side is mostly the the car companies so at the moment I a small Market uh early days but it's early days I mean can we see you know lithium has been around for say as a commodity probably only for about five seven years uh you know um you look for example the example of iron or uh 10 years ago he only traded as a physical commodity today has a more sophisticated swap Market uh give it a few years and we'll see where it goes but I I agree with you that so far with we don't see much interest from the commodity Traders on it I think that just too as small for them yeah I just say a really quick follow it's interesting I think it'll be interesting to others just a quick follow for the end I was at a lithium conference a few years ago and one of the main debates at that stage was is lithium a commodity and actually the different investment houses took different and then the lithium companies themselves took different positions on that question basically the lithium companies say it's not a commodity and the investment houses say it is and we can why that is but that's important but that you have something has to count as a commodity it has to be I I I think a lot of people in the market will refer at lithium as a chemical product rather than a rather than a commodity I mean chemicals are also Commodities but you know thank you any other questions yeah please yeah so um towards the end of your book you kind of talk about the future of commodity trading and maybe profits threatened by increased competition regulation maybe in financial institutions know going to deriv and all that um how do you think that has evolved since you wrote the book and how do you see future opportunities for profit for these uh train houses well first of all I will say thank you for the question uh first of all I will say that uh we we thought that we probably have seen the peak of the profitability of the commodity Traders and obviously we we cannot not really anticipate that we were going to have uh one of the worst largest uh disruptions of economic life with covid-19 followed by uh the invas of Ukraine followed by war in the Middle East uh which has turned to be quite profitable to the commodity Traders uh so one of the conclusions of our book was probably we have seen Peak commodity trading profits kind of turn a bit off to put it mildly um but look I think that one of the arguments that we put on the book that was that a new wave of Regulation was coming to the market has proved absolutely right I mean the amount of uh lawsuits filed by prosecutors against the commodity trading IND industry is unprecedented the fact that several companies have pled guilty of serious crimes here in the United States there are cases spending in the UK in Switzerland I think that things I do believe that the industry will change that uh some of the most established companies of the names I us refer to and they have involved in cases of bribery they cannot afford to have another another plead guilty of of bribery I mean it will destroy their their business the banks will run away from them so the fact that prosecutors have got very serious about this the fact that prosecutors particularly in the United States and and with both Administration this started under Obama administration it followed during the Trump Administration it has continue uh under the Biden Administration for sure the the Department of Justice and the prosecutors are not taking political Direction but it has H that there is a bit of a of a push to bring this sector into transparency I do think that that's going to that's going to change the fact that um Jack and and I have been filling so many questions from central banks and Regulators over the last couple of years particular particularly after the European energy crisis I I do think that there is a lot more attention and at least there is more awareness from Regulators about this sector I have not seen yet a lot of push for new regulation through policy has been more much more has been by by law enforcement rather than policy but I do think that we are beginning to see a a push that you know you you cannot have uh a a corner on the on the global economy that effectively is a black hole where central banks try to take a look and they come back and they say uh we simply do not have enough data to know what is happening uh I mean you know when you are having the the Interlink between commodity trading financial markets for Commodities and Commercial Banks financing all of that and a central bank wants to take a look and concludes we don't know uh Central are going to start doing things but you know I mean recently I was um I was talking to I was invited to a conference organized by a major Central Bank and I asked their Chief Economist so how many people do you have looking at Commodities one and a half economies and I said how many micro economies do you employ it's about 250 uh I I I do think that um you know considering how important is for the global economy particular ularly for inflation today it kind of felt to me like a no-brainer that they need to increase their their look at this but um you know I I I think that has been particularly 2022 was a game Cher in Central Banking and commodities and we will see more interest there but it's not an easy sector I mean there are some of these companies if if someone knocks at the door and say can we see your financials they simply can say no thank you very much go away we are privately owned company we do not need to show you any numbers uh you will need that's what I said at the beginning transparency I mean uh Carill that's the largest privately owned company in this in this country it used to publish every quarter their financials and they did so for about 15 years two years and a half ago they decided that they didn't want the public to know how much money they made and they just stop publishing their financials it requires then you know a bit of uh uh journalism entrepreneurial uh activity to get their financials and we do get their financials and the last Financial show that they made record profits of more than $6 billion do but um you know the the the attitude of the industry is to give regulators and governments the least possible I this is great I I I have one more question I can't resist I'm an IR prop so I have to have to ask this sort of geopolitical question uh on my mind and you could actually take this in a couple different ways but um one thing that you've talked about is sort of the need for data and transparency and democracies for all their various problems uh are probably at least on average slightly more inclined to transparency than autocracies uh and we are moving from a world say I don't know pick your date pre25 is uh where there was uh relative cohesion in the world uh to a world world where we have a very you much more hostility between the great Powers uh of the planet um to what extent and I can imagine this going in three different directions to to what extent is that increased hostility geopolitically uh does this uh help the Traders does it hurt the Traders or is it neutral for the Traders right it's like business as usual and I I can imagine it going in all of those directions but I'd love your thought that's a good question um h I see what it's so complicated to be on the other side when someone is asking the question thanks Jeff uh look I think that particularly I would not say as much as hostility but uh trade barriers protectionism is generally bad business for for business in general you know I I I think that commodity Traders have benefit great deal for the opening of global economies and and for the the Thrive of globalization so a reverse of that tends to be bad news however nothing is more profitable than a wall of disruption of sanctions uh um because it it creates uh um artificial disruptions that can be uh taken advantage by by the Traders I mean you can buy today just in mind that uh Russian oil can be bought for a discount to the normal Market I mean the discount barriers but somewhere between $10 and 15 perhaps $20 at some point but once that barrel of oil from Russia is refined on a Refinery which is outside uh the G7 and and the European Union the product of those barrels are no longer Russian it's made from the country where that Refinery is located so if you are a commodity Trader and you know we're just going to use some examples of Trades that we are seeing you could buy a barrel of Russian oil at $20 discount for the market ship it to a refiner in India and refine that Barrel in India the gasoline of those barrels are not anymore gasoline made from Russian crude and therefore stion it is gasoline made in India and that Trace at the international price so all the sudden in that example you are making a 25% profit from the global market you may have to grease the system in different places so you know discount for those um hidden cost but you are still probably making a 20% margin to the to the prevalent price and that is us on the back of sanctions and and disruption of trade when when President Trump imposed sanction sorry imposed trade barriers on China and China retaliated and say you know what we're not going to buy you any more soybean from America we're going to buy it from elsewhere that creates a massive Distortion of flows of soybean so that previously was going from America into China all the sudden have to find a different way a different home that goes from China sorry from the US perhaps into Europe Brazilian soy that previously going into Europe now all the sudden had to be shipped into into into China and and all of those very significant disruptions to normal trade open arbitr that they don't exit elsewhere and that they are massively profitable so um yes directionally you want less trade protect less trade barriers less protectionism and a more harmonious geopolitics because that usually was good for business and you know the growth of the 90s and the 2000 that really goes into into that I mean the global economy was booming you know was the end of History etc etc and and the last few years is reversing that but at the very same time some of those barriers are creating uh new opportunities for the commodity Traders also I will just say one last question on that is also um not everyone is sanctioning the same way not everyone is creating a a different level field I mean you are trading from what will will allow me to say the West the Europe or or North America US and Canada you have a set of rules but you base yourself in say Dubai you can trade in a complete different way with a new set of rules if you are a Trader from China you have a complete new set of rules and also some of these Traders are not longer you know these entrepreneurial characters from the private sector some of them are these very entrepreneurial characters working for the Chinese government China has created his own Traders massive trading operations one of the largest ones and more Shadow we we we I mean I complain about the traders that we write on the book these have a level of transparency I mean the traders in China we we know very very little there's a guy that Maas is an expert on Chinese Finance yeah so my question is obvious L on the Chinese case that you just to follow on what you said in the end so China is the uh the biggest Trader in in most Commodities in the world biggest import of oil as you mentioned um and the trade in that is a highly securitized issue in China they use a lot of State on Enterprises uh trade bilaterally even use Chinese companies at the source of the Commodities so I wonder how you see China's role in potentially squeezing the commodity Traders going directly to the source using St of Enterprises um instead of intermediary that has been a a a huge concern by the the independent commodity Traders uh because they so uh China having a very cheap source of capital uh having a natural short position at home a lot of those Chinese commodity Traders are less of Traders are more of Supply chains dedicated to service China they are not trading Commodities and be agnostic of where the commodity is going to end they will just direct the commod to wherever the market decides they they are going to direct the commodity the soybeans are going to go from Brazil to China they're not going to go to wherever the price is it's just going to be there are more about security of supply of China and less about the entrepreneurial uh character that we we saw on commodity trading they benefit from as I said cheaper source of capital um and also they benefit from other rules I mean the Chinese government is not really uh investigating the briary of some of their hom ground commodity trading houses they also benefit of the the potential for a lot of barter deals where Commodities are are are are provided in return for other goods and literally as barter there has been some barter deals where is oil for weapons uh oil for uh Chinese manufacturer increasingly also they benefit from a non-dollar channel where they can help commod countries with under sanctions be Russia be Iran to trade TR in in in in non-dollar currencies using the Jan or using bter deals so they are a threat to commodity Traders the one pro the independent commodity Traders the one problem that you have is that uh the business of commodity trading is about risk taking and and the most essential function of of a um inside a commodity trading house is basically managing that risk and the amount of risk that you are taking and the Chinese Traders so far have not been particularly good at managing the risk and perhaps the incentives have not there if you are a senior executive of one of those Chinese commodity Traders you are making money for the state while you you you are doing your your your job you're not going to get like any Kos if you lose money you're going to lose your job and and perhaps something else so the the the incentive for taking risk is not really there I mean you know they they they tend to be quite conservative um in the way that they trade and sometimes um at least The Bu from I will say the Western commodity Traders is that often their the way of taking risk is is more uh pting the market taking a view on the direction of the market based on perhaps inside information from within China rather than the Arbitrage opportunities that was describing but certainly they are a threat and and China has created two three big oil Traders already one huge uh agricultural commodity trading house and a big metal commodity Trader although the metal one has had quite a lot of difficulties recently and we don't know what the future is going to be of them but they do have do they they have created quite a lot of uh volume and they they are responsible for a significant chunk of of volumes today well I know there are more questions I hope that you'll take the chance to come up and and talk to Ave at the end but for now I'd like to wrap up and please join me in thanking Ave for his talk thank you thank you so much thank you

Channel: Watson Institute for International and Public Affairs

Views: 5,255

Keywords: Watson Institute, Watson International Institute, Brown University, Brown u, Brown, Public Affairs, economy, econ, Global Economy

Id: NCgEgz3q4U4

Length: 83min 11sec (4991 seconds)

Published: Sun Apr 28 2024