(Adds agriculture comments)
LAUSANNE, Switzerland, March 28 (Reuters) - Top executives from the world’s largest commodity trading houses discuss trends in trading at the FT Commodities Global Summit in Lausanne, Switzerland, this week.
The following are highlights:
“Trade policies coupled with foreign aid and sound development policy is critical. Today’s global proliferation of a me-first trade posture threatens to destabilise decades of progress in negotiating.”
“We all have to make the case for free trade,” he said, arguing that “we have to help political leaders speak to their base”.
MacLennan has yet to be invited to meet U.S. President Donald Trump but would engage in debate with the U.S. administration over trade and immigration. “I don’t want to sit in the bunker for 4 years,” he said.
Cargill sees the United States as a clear beneficiary of global trade, and in agriculture one-third of farmland is planted for exports, while the NAFTA agreements has helped Canada become the No. 1 market for U.S. agricultural exports and Mexico the No. 3. “Countries can source their agricultural products elsewhere if they’re not getting them from the United States,” he said.
Training would be important to adapt to the uneven benefits of trade, while “inclusive and responsible” immigration policy would also be vital, he said. Cargill has 1,000 unfilled positions at meat plants in the United States.
“This year we’re expecting around 1.4 million barrels per day of product demand growth - that’s very similar to last year, in line with GDP growth which is pretty positive everywhere. Overall that’s a very good story and that’s going to allow, will allow markets to begin (the) stocks draw that everyone is forecasting.”
“Border tax is complicated. It’s tricky to assess impact on oil price. If it were to be implemented, it would create a lot of arbitrage on imports in the first period of time and a price increase in the U.S. I don’t think it’s a great idea as U.S. consumers will have to foot the bill.”
“There’s a feeling that stocks aren’t really drawing as they were expected, so (there’s a) need to extend (production cuts) a bit further to eat into 300 million barrel cushion ... At $50 per barrel there’s a lot of incentive to continue policy, at $60 per barrel, no. It’ll depend on how fundamentals exert themselves in the second quarter.”
Brent oil futures were at $51.17 a barrel at 1035 GMT.
“I think a lot of eyes are looking at Russia at the moment ... Russian compliance hasn’t been 100 percent. I think a lot of the onus is on Russia to show that they are serious about this. If Russia comes to the fold with non-OPEC then we’ll see a floor of $60 per barrel.”
“Clearly, we saw a reaction to higher prices following the last OPEC meeting and a pickup in (U.S. shale) production no doubt. But at the same time, because the cycle for shale is very short, what it does is it prevents companies to invest a large amount of money into bigger projects that have a longer cycle.”
“While the shale producer responds very quickly to the higher price, most of them are hedged, therefore they have pushed the back end of the curve down. In the same way, this is going to prevent bigger projects coming around the world and I think we are going to have a supply shock probably in next two to four years.”
“Our company has concluded transactions with Iran, it’s very complicated ... Very strict regulations on what you can do - has to be absolutely without any touching of U.S. dollar.”
Tornqvist added it was easier to sell to Iran, which Gunvor does in euros, but harder to buy. He does not see any improvement in the short term.
“There is an underestimation of how much electric cars can penetrate mainstream driving. Not everywhere, but in places like Europe where you use cars for short driving ... Like Holland. Costs are coming down.”
Called Trafigura’s acquisition of Indian refiner Essar Oil in partnership with Rosneft and investment fund UCP as a strategic investment for both international trade and domestic consumption.
“We just have to see a slight increase in (vehicle) demand numbers to see an enormous increase in gasoline consumption,” he said of Indian demand.
“We don’t have plans to add big a acquisition to that. We’ll bring in a strategic partner at some point to help us grow the asset,” he said, referring to the acquisition of Anadarko’s East Texas gas producing assets.
“I think he’ll get the infrastructure through because it means jobs to people, and maybe that’s where the coal miners go to work, fixing infrastructure. The infrastructure in the U.S. is a North American phenomenon, not a global phenomenon.
But I think indirectly the impact on the global commodity markets could be the U.S. dollar. If you get this strong dollar from the loose monetary or fiscal policies it will have a bigger effect on global commodity markets than the actual infrastructure spending in the U.S.
Regarding U.S. coal mining, he said: “You have an industry that was producing 1.1 billion tonnes, it’s on track to produce 680-700 million, so there has been tremendous rationalisation and consolidation.
“However on the demand side the customers have found an easy exit from coal with low cost natural gas and we have prolific reserves of cheap low cost natural gas,” he said.
“I would like to think that President Trump’s intentions are good to put miners back to work, but the government can’t dictate to the market.”
JAY HAMBRO, CHIEF EXECUTIVE INDUSTRY, ENERGY & MINING, SIMEC GROUP LIMITED:
“I think he (Trump) is doing and says about doing infrastructure investments that obviously drives demand and makes the investment less risky. But I wouldn’t follow his lead on a commodity price bump any further.
JEAN-SEBASTIEN JACQUES, CEO RIO TINTO
Jacques said that the price of iron ore later this year would be hard to predict owing to Chinese spare capacity.
“Chinese domestic iron ore production three years ago was slightly more than 400 million tonnes a year ... Today, we believe production is at 260-270 million tonnes a year ... but there’s a lot of idle capacity and the big question is, as and when winter is behind us, are they going to restart capacity? It’s difficult to read the situation ... a lot is privately owned.”
“Licenses are under threat. Even in Australia, yes the outcome was a positive one, but until two weeks ago there was a risk of a potential big tax burden. Across all geographies ... government and communities want a bigger share of the cake.”
Jacques said that the above issue has become heightened due to the increased use of technology as it impacts jobs.
“We have the largest fleet of autonomous trucks ... There will be fewer and different ones so we’ll need to retrain those people ... We will not be able to or slow down the rise of technology.”
CHRIS MAHONEY, CHIEF EXECUTIVE OFFICER, GLENCORE AGRICULTURE LTD:
“I think the industry needs consolidation but in practice it’s easier said than done,” he said, saying that attractive targets for large traders that would not raise antitrust concerns were not straightforward.
Glencore has a “gap” in the U.S. market but making an acquisition there was less important than a decade ago, he said.
Disruption to North American trade due to tensions over the NAFTA agreement could affect Glencore’s large Canadian activity, which involves 10 million tonnes of flows across the border with the United States. But this is not what the company expects, with tensions focused on U.S.-Mexican relations, Mahoney said.
Ukraine’s Kernel wants to sell its 50 percent stake in a joint venture with Glencore in a grain export terminal at the Russian port of Taman, he said.
GONZALO RAMIREZ MARTIARENA, CHIEF EXECUTIVE OFFICER, LOUIS DREYFUS COMPANY:
“I would see prices continuing to be under pressure unless there is a weather problem,” Ramirez said of crop markets, noting the only significant weather risk now was a potential El Nino pattern that could hit palm oil production in 2018.
As well as pursuing plans to bring in partners to invest in non-core businesses such as juice and metals, Louis Dreyfus is looking at developing long-term agreements and vertical integration to support its traditional businesses like wheat and sugar, he said.
He criticised moves in the United States to curb Argentina’s biodiesel exports, just after the South American country had won a case against the European Union. At the same time, Louis Dreyfus supported efforts by the U.S. sugar refining industry to stem flows of subsidised Mexican refined sugar.
CARL CASALE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CHS INC:
CHS was not observing any trade disruption for now relating to the U.S. government’s criticism of trade agreements, but saw export trade as crucial for U.S. farmers who are set to see their income decline for a fourth straight year, Casale said.
Supply continued to outpace demand in global agriculture markets. “Other than that, we’re good to go,” he joked.
The persisting supply situation meant the market “looks an awful lot like the last 40 years,” with volatility and high prices now appearing to have been a five year interlude.
Reporting by Julia Payne and Gus Trompiz; Editing by Louise Heavens and David Evans