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The commodity trading industry made record estimated profits of $104bn last year, a McKinsey report said, even as market volatility decreased and earnings at some of the biggest groups fell.
The surprise increase from 2022, when the fallout from the war in Ukraine pushed up prices and supercharged profits, was driven by a wave of new entrants into the sector — including tech-focused traders and hedge funds — and rising returns from power trading activities, according to a report by consultants McKinsey.
Roland Rechtsteiner, a partner at McKinsey and one of the authors of the widely read annual study, estimated that earnings before interest and tax across the sector reached $104bn in 2024, exceeding the $99bn record set by the industry in 2022 and double the $52bn reported in 2021.
The figures reflect the earnings from commodities trading activities across the entire sector, including by independent traders, banks, hedge funds, national energy companies and asset-based businesses such as BP and Shell.
While the biggest independent traders — such as Vitol and Gunvor — have reported, or are expected to report, a decline in profits from record levels set in 2022, other newer entrants have been able to grow year on year as they continued to improve trading strategies and optimise their operations, Rechtsteiner said.
“We had a lot of national energy companies, we had midsized energy companies, we had different players out there that could actually grow their market from 2022 to 2023,” he told the Financial Times.
The McKinsey analysis diverges from that of rival consultant Oliver Wyman, which estimated last month that 2023 gross margin across the sector — the amount made on trades before deducting costs such as tax, salaries and bonuses — had dropped by about 30 per cent year on year, but was still about double historic levels.
Privately held Swiss commodity trader Gunvor this week reported annual net profit of $1.25bn in 2023, its second-biggest ever, but down about 50 per cent from 2022, partly because of a $467mn provision to settle bribery charges. Publicly listed Glencore noted a similar drop in trading profits in February when it reported adjusted ebit for its marketing division of $3.5bn, down 46 per cent from 2022.
Despite such declines, increased trading by traditional energy producers and the entry of “data-driven traders” had increased the number of players in the market, boosting liquidity and enlarging the profit pool, Rechsteiner said.
Sector-wide profits from the trading of power and gas increased 47 per cent year on year, according to McKinsey’s estimates, in a sign of how important those commodities will be to the future of the industry.
“Over time, we will see pretty much every commodity trader being focused on power,” Rechsteiner said, adding that this was an input to other activities and the key to the decarbonisation of the global energy system.
Other lower-carbon energy products, such as hydrogen and biofuels, depend on gas or power or other commodities for their production or transportation creating new cross-commodity opportunities for trading houses. “That’s just creating an extreme connectivity of different asset classes, which we didn’t have before,” he said.
Despite the growth in new areas, Reichsteiner cautioned that profits from oil trading, although down 19 per cent year on year, remained the biggest single contributor to sector-wide earnings. “The oil trade is going to stay here for a long time,” he said, adding that demand and the need to balance supply and demand around the world remained strong.
