Futures & Commodities

Asia's big three commodity traders reveal profit pain

Asia's big three commodity trading houses were hit in the third quarter by a slump in raw materials prices that hammered profits and revenues.

Reporting results this week, Noble Group, Olam International and Wilmar International - collectively known as the NOW group - highlighted a trio of challenging market conditions this year: Volatility in raw material prices, currency fluctuations and slumping investments.

On Thursday, Singapore-listed Noble reported an 84 percent on-year plunge in third-quarter profits to $24.7 million, mainly due to losses in its metals division and agricultural arm. Revenue was down 20 per cent to $18.7 billion.

'Traders are the lubricant of the commodity industry'
'Traders are the lubricant of the commodity industry'

The company also announced plans to raise at least $500 million and said its chief financial officer had left the company for family reasons.

Investors were unimpressed, sending the company's share prices tanking as much as 9 percent on Friday.

This came on top of share-price losses of about 60 percent this year after Noble became embroiled in an accounting dispute that attracted short-sellers to the stock. The embattled commodities trader has been under scrutiny this year for its accounting practices.

Raw material price declines in major commodities also contributed to a 30 percent fall in Temasek-controlled Olam International's third-quarter profit to S$31 million. While Olam booked a 4 percent rise in on-year revenue due to robust nuts, cocoa and coffee prices, lower prices of major commodities such as grains, sugar, rice and dairy weighed on its food staples and packaged foods segment.

Olam, which has significant exposure to Africa, also faces challenges from uncertainties from foreign currency restrictions in Nigeria that were imposed to preserve the country's currency reserves after a plunge in oil prices.

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Meanwhile, palm-oil processing giant Wilmar International reported a 35 percent third-quarter profit drop to $275.9 million, mainly due to losses in investment securities. Revenue fell 7.6 per cent on-year due to lower commodity prices.

The NOW group, which has been in pursuit of a bigger presence in world agri-commodities trade, is seen as an up-and-coming challenge to the West's traditional big-four trading houses that are collectively known as ABCD: Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus.

The commodities sector more generally has seen a rash of merger and acquisitions activity in the past year as companies focus on key businesses and look for new opportunities in new regions and amid low prices.

Olam bought ADM's cocoa operations, making the Singapore-based company one of the top processors of the commodity globally. ADM, meanwhile, increased its stake in Wilmar, whose other major shareholder is the influential Kuok Group.

And in August, Japan's , making it the second largest shareholder after Singapore sovereign wealth fund, Temasek Holdings.