This article was written by Anthony Lipmann. All views and opinions expressed are strictly his own.
At the heart of a new book, The World for Sale, is one simple unspoken question. ‘Are all commodity traders crooks?’ As one of the breed myself, it is a question to which I would gladly seek the answer.
Javier Blas and Jack Farchy, both former journalists of the FT, and now both at Bloomberg, make a good fist of telling the story of commodity trading and what the world looks like viewed from oil well, mine, or metal, upwards. It’s not a pretty sight. At the heart of each tale is a buccaneer, a rough diamond, for whom there is no barrier except death and taxes (the latter of which is easily overcome).
The life cycle of these companies tends to mirror the life of a single trader – impatient in youth, mellowing in middle age, and spent by 60. We get the story of Philipp Brothers, an early 20th century trading phenomenon. The ceding of its power to its young-turk employee, Marc Rich, who, conforming to the thirty-year cycle, then cedes to Ivan Glasenberg of Glencore. It’s a plotline that in this case has not yet run its course. Perhaps, for all we know, Glasenberg will break the mould? He re-defined every other rule.
The also-ran characters are legion too – Vitol’s Ian Taylor, Trafigura’s Claude Dauphin, Cargill’s John Macmillan, Xstrata’s Mick Davis, Noble’s Richard Elman - and a host of names that mean almost nothing to the man in the street but are hard currency to commodity folk.
Why does the commodity sector matter and what significance, if any, does it have to those outside its confined world? Perhaps it is just because oil, copper, aluminium, zinc, wheat, cotton, cobalt are the items which lie at the base of what we call society. There's just too much at stake.
Neither Blas, Farchy (or me, for that matter) are slow to list the charges at the commodities traders’ door – cartels, funding and propping up failed states, satisfying the proclivities of the leaders of failed states, breaking embargoes, enhancing the trade of polluting minerals (such as coal), off-setting risk to investors while guiding less risky deals closer to home, operating through shell companies via the treasure islands of Grand Cayman, BVI and others, domiciling head offices in low tax regions, bribery, and generally dealing with anyone and in anything without scruple so long as grand profits are in prospect.
I can’t imagine what the attraction is.
The story that is repeated most often here, and which lies at the heart this account of crimes and misdemeanours, is the fatal attraction between a failed or failing state, kleptocracy or dictatorship, and a commodity trader with a shopping list. Nothing, it would appear, abhors a vacuum more than a merchant with bricks of cash. When Jamaica runs out of funds to pay for its oil imports, it is Marc Rich who writes terms for the future delivery of bauxite and alumina that make the Treaty of Versailles look generous.* When Libya is in the midst of civil war, Ian Taylor of Vitol jets in under fire to the financial rescue of the Benghazi rebels in a deal to supply diesel and petrol in return for crude. When the crude fails to appear, Vitol becomes a lead creditor for the frozen overseas assets of the former Libyan regime ahead of the populace from whom it was defrauded. When the young Kabila returns to DRC it is with cash in his pocket as an advance on future cobalt. In Russia, for example, the book suggests Ivan Glasenberg of Glencore is to be partly thanked for Mr Putin’s present good health and longevity, for it was at Russia’s weakest moment in 2014, with the rouble falling and the prospect of Russia defaulting on external debt repayments, that Glencore buys a stake in Rosneft. For this act of charity, Glasenberg is awarded ‘Russia’s Order of Friendship’. In Cuba at different times both Trafigura and Vitol assist Castro by financing oil in return for sugar, nickel, cobalt and hotels. Perhaps the worst example in the entire book relates to the dumping of toxic waste by Trafigura in Abidjan, Ivory Coast in 2006, close to where people lived. All for a deal, Trafigura had taken Mexican coker gasoline and to save on cost had converted the material onboard vessel pumping 36.2 tons of toxic waste into a separate hold. All countries had refused to discharge the cargo, and the only legitimate place that had accepted it wanted $700,000 for the neutralization. Using a front company, a deal was hatched in Ivory Coast to dispose of it for $20,000. Trafigura later claimed it did not know the goods would not be handled safely. The part of the story that always stuck in my mind at the time was the use of what has since been called a super injunction, forbidding reporting of the story. It seemed to me then that if the law could be used in such a way, all investigative journalism would be dead. In fact, as this book shows, it is alive and well and the list of deals and states referred to goes on – Iran, Chad, Kurdistan, Iraq, Serbia, Angola, Venezuela. Neither the weakness of states nor the tricks used to prop them up are entirely new – weak and mismanaged states and spendthrift sovereigns have turned to any means at their disposal throughout history. It was such a weakness which was exploited by the Fuggers in the 15th century to obtain rights to copper and silver mining in return for funding the wars of Maximilian I.
What seems like mystery to the man in the street might be less opaque if it was simply understood. Perhaps an appropriate analogy for the service commodity traders supply could be summed up as 'Wonga for nation states' - the same bonkers interest rates, followed by a perilous spiral into ever greater debt.
It is easy to blame the traders but in Zambia, a country I know a little about, you could say it was the policies of the upright bankers at The World Bank and IMF, wearing Hermes ties and fine suits, who pushed the country into the loving arms of the traders. It was their edict in 2000, while the country was in famine and the copper price was less than $1 per lb that forced the country to privatise at the point of a fiscal gun. And who came to the rescue? Glencore, First Quantum, Vedanta, ENRC and others. In Glencore’s case, copper mines and smelters were acquired into which they invested many millions, increasing production, modernising systems, installing environmental equipment, and creating a future hub for their trade routes out of DRC. This is not a story contained in the book but one I serve as an example of why leaping to judgment is complex.
Commentators and apologists for the trading fraternity often cite commodity people as the least worst option when considered against the mess states generally make of controlling national resources when they undertake it themselves. Take the former Soviet Union for example. Were the state-controlled foreign trade organizations charged with the import and export of commodities and their pricing committees, a better way of running things? Did value ever reach the populace more advantageously via this route than as a result of traders fighting with each other for supplies and sales? (Despite the bribes and layers of cream siphoned off as commissions, are not the activities of commodity traders simply a method of handling a part of world economies that can never be captured within society’s norms?)
Blas and Farchy tell a racy story, as gripping as any other tale of misdeeds. Their narrative is amply backed up with detailed citations. Quotes from reticent traders are often published on guarantee of anonymity; but better in than out. Apart from one poor sod in America who gets banged up for his crimes, most of the rest get off scot-free, although a couple of them die from cancer before their time and one pair set up an Oxford University College to burnish their name. [First test for any undergraduate - read this book before taking up a place. If they did, I wonder how many would still want to? Or shall we just allow students to reserve opprobrium for figures safely tucked away on plinths or as busts?]
The only problem with the thesis of this book - that to be a trader is a crooked profession - is the assumption that psychopathic narcissistic megalomania is the only imperative. I’m here to tell you that perhaps it is not.
It doesn’t make as many headlines, but it might disappoint both journalists and billionaires to know that there are journeymen in the commodities business who seek fulfilment by delivering metals, wheat, oil, or whatever, to customers without cornering markets and without inducement. There is satisfaction – believe it or not – in assisting end-users to obtain delivery of furnace or refinery-ready raw materials in price and on time without fuss. There is profit and a healthy living to be had by having happy customers and helping them across the road rather than pushing them into the path of an oncoming truck.
Why do those of us who spend a life in commodities do it? The truth is, we are no surer of the reasons than those who do not. But, at our small trading company at least, occupied with minor metals, caught in the slipstream vortex of the commodity trade, we feel a sale to a customer on time and in price leads to trust and further business. If we earn enough to put food on the table, that is good enough.
Do we lack ambition? Certainly, on the scale of the sultans of trade delineated in this book - we do. World domination of the zinc or copper markets is not our goal. However, it is also true that were it left to me, mankind would perhaps not have discovered the wheel.
What The World For Sale tells us about commodity traders is that, unleashed, they are like wolves. They are born wolves and remain true to their yellow-eyed selves, and as such it is best to know what you are before you enter the business of commodities. Wolf or lamb? It would seem both are required. One to be eaten. The other to eat.
When I was young, I remember asking my father, who was a metal merchant, why he wasn’t richer (he was actually moderately wealthy and had made what he earned from nothing). His answer was, ‘I never wanted to walk over dead bodies’.
The World for Sale is about those who did.
* The period of Marc Rich's involvement in Jamaica was preceded by offers of Soviet assistance which could have resulted in another Cuba and another U.S./Soviet proxy confrontation. Some argue that Marc Rich's rescue package averted this potentially even worse outcome.
The World For Sale
[Money, Power and the Traders Who Barter the Earth's Resources]
By Javier Blas & Jack Farchy
Published by Random House Business (2021)