Or this: Glencore in 2010 controlled 55 percent of the world's traded zinc market, and 36 percent of that for copper.
Or
this: publicity-shy Vitol's sales of $195 billion in 2010 were twice
those at Apple Inc. As well as the 200 tankers it has at sea, Vitol owns
storage tanks on five continents.
U.S.
regulations are now pending to limit banks' proprietary trading --
speculating with their own cash. The new rules don't apply to trading
firms. "Trading houses have huge volumes of proprietary trading. In some
cases it makes up 60-80 percent of what they do," said Carl Holland, a
former price risk manager at oil major Chevron
Texaco, who now runs energy consultancy Trading Solutions LLC in
Connecticut. "They have the most talent, the deepest pockets, and the
best risk management."
In
addition to proprietary trading curbs, the U.S. regulator voted on
October 19 to impose position limits in oil and metals markets. That
gives banks who trade futures cause for concern, but since physical
players usually receive exemptions to limits -- because they are
categorized as bona fide hedgers -- trading firms should go unscathed.
The
trading houses' talent and deep pockets translate into incredible
power. "Most commodity buyers in the world are price takers. The top
trading firms are price makers," said Chris Hinde, editor of
London-based Mining Journal. "It puts them in a tremendous position."
The
sort of position that has allowed Vitol to do a brisk oil business with
the U.S. government, the besieged Syrian regime, and Libya's newly
empowered rebels simultaneously over the past few months. In April the
company dodged NATO
bombs and a naval blockade and sent an oil tanker into the battered
Mediterranean port of Tobruk to extract the first cargo of premium crude
sold by rebels at the helm of a breakaway Libyan oil company defying Muammar Gaddafi
.
Vitol
also discreetly supplied Libya's rebels with $1 billion in fuel,
Reuters has learned -- supplies they desperately needed to advance on
Tripoli. Vitol's early running gave the firm an edge with the country's
new political stewards. As it turns the pumps back on, Libyan oil firm
Agoco has allocated Vitol half of its crude production to repay debts.
While
its savvy traders were doing deals in eastern Libya, Vitol, along with
rival Trafigura, kept refined product supplies flowing to the besieged
government of Bashar al-Assad
in Syria as his troops attacked civilians. Trading houses were able to
do this because international sanctions on Syria do not ban the sale of
fuel into the country, but they did not have to fight off much
competition for that business.
PAST SCRUTINY
Despite
a relative lack of regulatory oversight, such reach does attract
scrutiny. "There has always been some concern about the trading firms'
influence," said Craig Pirrong, a finance professor and commodities
specialist at the University of Houston, who points out that some firms
"have been associated with allegations of market manipulation".
Public
and regulatory attention usually rises with prices. A spike in world
food prices in 2007 stirred an outcry against the largest grain trading
firms; when oil prices surged to a record $147 a barrel in 2008, U.S. Congress probed the role
of oil trading firms, but found no smoking gun. But in May the U.S.
Commodity Futures Trading Commission sued Arcadia and Parnon, both owned
by a Norwegian shipping billionaire, for allegedly manipulating U.S.
oil prices three years ago, amassing millions of barrels they had no
intention of using. The companies dispute the charges.
And it's not just the Europeans. Executives of Illinois-based ADM, formerly Archer Daniels Midland,
were jailed for an early 1990s international price-fixing conspiracy
for animal feed additive lysine. After Minnesota-based Cargill built a
huge soybean terminal on the banks of the Amazon River in 2003, it was targeted by Greenpeace and subjected to Brazilian
government injunctions for allegedly encouraging more farming in
fragile rainforest. Cargill has since placed a moratorium on buying
soybeans from newly deforested land.
THE SQUEEZE AND THE ARB
For
many commodities traders, the most profitable ploy has been the
squeeze, which involves driving prices up or down by accumulating a
dominant position. In the early 2000s, the Brent crude oil stream --
used as a global price benchmark -- fell to 400,000 barrels per day from
more than 1 million in the late 1980s. A few traders seized the chance
to buy what amounted to almost all the available supply. Price premiums
for immediate supply spiked, sapping margins for refiners worldwide.
U.S. refiner Tosco sued Arcadia and Glencore for market manipulation;
the case was settled out of court....
MUCH MORE