February 16, 2024 [Bloomberg]- Trafigura Group is facing sizable losses related to its oil activities in Mongolia, according to people familiar with the matter, in a fresh blow for the company that has risen to become one of the world’s top commodity traders.
Trafigura uncovered an issue in its Mongolian oil business in the past few months, the people said, asking not to be identified as the matter isn’t public. It could result in losses in the hundreds of millions of dollars, several of the people said.
A Trafigura spokesperson said that the company had recently agreed debt repayment schedules with oil products customers in Mongolia. “We have been trading oil and metals in Mongolia for a number of years. We have a good track record of successfully recovering debts from counterparts in emerging markets,” the spokesperson said, declining to comment on the size of the exposure.
The losses are likely to be manageable for Trafigura, which reported profits of $7.4 billion in its last financial year. Owned entirely by about 1,200 of its employees, the company has grown rapidly in the past decade to become one of the world’s largest commodity traders, supplying $240 billion in goods last year and handling enough oil every day to meet the combined demand of Germany, France and Spain.
Yet the discovery of a new trading problem will raise fresh questions about Trafigura’s internal processes and controls, coming almost exactly a year after it revealed it had been the victim of a massive alleged nickel fraud and had lost more than $500 million.
The nickel fraud prompted a period of soul-searching for Trafigura, with Chief Executive Officer Jeremy Weir saying it was undertaking a “very significant audit around where we’ve come up short.”
Trafigura does not believe that the restructuring of the Mongolian oil debts was comparable to the nickel fraud, according to a person familiar with its thinking.
The size of the potential losses is large relative to Mongolia’s tiny oil market. Mongolia’s annual oil consumption amounted to just 35,000 barrels a day in 2021, according to the most recent available data from the US Energy Information Administration, worth about $1 billion a year at current prices. The large majority of Mongolia’s oil demand is met by oil products imported from Russia and China by rail.
The losses are a blow to Trafigura’s oil team, which has benefited from a shift in the internal power balance as the rival metals unit struggled with the fallout from the nickel fraud and other setbacks. Trafigura reorganized its top management team in September, with a clear majority of the key executive committee now having an energy background.
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