GLENCORE - The ugly side of oil trading as Glencore profits from higher prices

The really good thing about Glencore being a public company is that we now know a great deal more about how it earns its gargantuan income than when it was a secretive partnership operating out of Switzerland.

What is striking about its first set of numbers is not the sharp jump of 47pc in income to £794m in the first quarter, but how it is making that money.

The big winner for Glencore was its energy trading division where profits soared by 140pc, boosted by the volatility in oil markets.

So while the world economy and consumers in the UK suffer the harsh effect of higher oil prices – something that the Chancellor George Osborne will refer to at the Mansion House tonight – Glencore is doing very nicely thank you.

The speculators – Glencore included – like nothing better than the volatility created by the Middle East upheavals and the Japanese earthquake.

All of this is relevant to every household in Britain. Inflation, as measured by the consumer prices index, may have been held at 4.5pc last month but the outlook for energy costs is far from healthy. Morgan Stanley has raised its estimate for fuel price rises in the coming months from 6pc for gas and electricity to 10pc and 16pc respectively.

Tesco believes that the pressure of high petrol prices is hindering the big shop at superstores and people are returning to the high street as a fuel-saving measure.
All this, is no doubt very green, but it is not doing much for consumption, the economy or inflation.

Glencore, as both a big producer of vital minerals and agriculture and a trader, has the best of all worlds. It can control production, exercise influence over the market in metals and foodstuffs and arbitrage all at the same time. This guarantees that over any period of time it is almost always a winner and hang the end user. It is quite encouraging Nicholas Sarkozy, taking an admirably dirigiste position, is calling for the G20 to engage in much greater surveillance of the commodity markets.

In a way it was inevitable that such calls would come as the role of the big players in the market, including rivals such as Trafigura and Noble Group, become more transparent.

There is one positive sign that Glencore chief executive Ivan Glasenberg is getting the message.

Following the disclosures on these pages about Glencore’s muddled tax affairs the company is pledging more information on its tax payments around the world. That is a useful start.

Original Article Link –

http://www.dailymail.co.uk/money/article-2003530/ALEX-BRUMMER-The-ugly-oil-trading-Glencore-profits-higher-prices.html