Two months ago, weeks before the carnage in Glencore started in earnest, we asked a simple question:
Which will be first: Trafigura, Mercuria or Glencore
— zerohedge (@zerohedge) July 22, 2015 [11]
Judging by today's collapse in Glencore price - a company whose CDS we said in March 2014 should be aggressively bought [12]- which is now trading at an all time low below 100p on a Goldman report which confirmed what we have been saying all along (more on that shortly), it does appear that the Swiss commodity giant and copper miner will be the first mega-commodity trader with trillions in counterparty exposure to be "Lehmaned."
But going back to July 22, what our tweet hinted at was not so much that one of the three commodity traders would be the first to blow up, as that the entire commodity-trading space is in jeopardy as a result of the collapse in commodity prices and carried inventory which has not been market to market in months (see the recent implosion in Jefferies fixed income results [13]).
Indeed, one of the most surprising developments in recent months has been the relative scarcity of any high-profile commodity blow-ups or trader snafus, despite the tumbling commodity prices.
That changed today when Dutch grain-trading firm, Nidera BV (whose name is an acronym consisting of the countries in which it operates: Netherlands, India, Deutschland, England, Russia, Argentina) has suffered a crushing blow as a result of a "rogue trader" whose actions led to "significant losses" in the company's biofuels business.
According to a Bloomberg report [14], that Nidera CEO Ton van der Laan said the grain-trading house has since exited the biofuels business and closed all the deals linked to the losses. "There is a significant loss," he said on Thursday in a phone interview from Singapore, declining to provide a figure. He said Nidera will still post a profit for the company’s fiscal year, ending this month.
The actions of the trader "probably lasted for a prolonged time," and the company only "found out earlier this year," he said. Nidera notified the Dutch police because the trader "was involved in fraudulent action," he said, declining to elaborate.
What makes this case even more interesting is that Nidera is controlled by Cofco Corp., China’s largest food company, which took control of Nidera last year after buying 51% of the company to create a global agricultural commodities trading house. The deal valued Nidera at $4 billion, including debt, a person with knowledge of the matter said at the time. The rest of the Rotterdam-based company, established in 1920, is controlled by the founding families.
While the firm did not quantify the size of the loss (the number will surely leak over the next few days) but it is virtually assured that the company's profitability was massively impaired if not entirely wiped out: Nidera reported 2014 net income of $116.2 million, up from $72.7 million the year before.
The biofuel losses emerged after global prices plunged earlier this year, said van der Laan. Biofuels, made from crops including soybeans and corn, are closely linked to the price of crude oil.
Strange how "rogue traders" only emerge when trades go against them: we have yet to encounter a "rogue trader" case who was caught doing something illegal after generating a profit.
Those curious to learn more about Nidera's now defunct biofuels business are out of luck. As Bloomberg's Javier Blas shows, the webpage placeholder for the division is now 404-ing [15].
[16]
Finally, as Bloomberg reminds us while scarce in the past year, commodity trading houses have been hit by rogue traders in the past, causing big losses. In one of the most notorious cases, Yasuo Hamanaka, a top copper trader for Sumitomo Corp., hid $2.6 billion in losses trading the metal from its Japanese employer in 1996. In another case, a trader in the soybean market caused significant losses in 1999 to Andre & Cie SA that ultimately pushed the company, at the time one of the world’s largest grain traders, to its collapse in 2001.
Expect many more commodity blow ups in the coming months, all of which will be blamed on, you guessed it, rogue traders.
