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Trafigura profit leaps on strong oil and gas trading

London

TRADING house Trafigura's six-month net profit jumped by 92 per cent after strong performance from its oil and gas desks helped to offset weakness at the metals division and losses at key associates.

The company attributed the profit leap to favourable market conditions, strong US oil exports and its own oil desk's restructuring.

Rivals such as Vitol and Gunvor have also signalled good profits in early 2019 as oil price volatility created a favourable market structure after a tough trading year in 2018.

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"Our performance was also enhanced by our market-leading position in strategic commodity flows, notably the increase in exports of crude oil and liquefied natural gas from the United States," Trafigura said.

Net profit for the six months to March 31 was US$425.7 million, up from US$221.8 million in the same period a year earlier, the company said on Tuesday.

Core earnings (Ebitda) were up 69 per cent at US$1.1 billion, with gross profit rising 50 per cent to US$1.47 billion on flat revenue of US$86 billion.

On the downside, the metals and minerals book's contribution to gross profit fell by about a third to US$437 million while key associates posted losses.

Trafigura said it had combined losses of US$104.3 million at its mid-stream company Puma Energy, Brazilian iron ore port Porto Sudeste and Tendril Ventures (Nayara Energy), its Indian refining venture with Russia's Rosneft.

Associates such as Puma, which Trafigura calls equity accounted investees because its stakes are less than 50 per cent, constitute half of Trafigura's equity - US$3.33 billion out of total group equity of US$6.56 billion.

Trafigura needs to maintain a healthy level of equity as a guarantee against debt with its bank lenders.

Its total debt - the heaviest among trading houses - rose to US$32.7 billion from US$32.2 billion over the six-month period.

Adjusted debt, which excludes inventories and securitisation programmes and is the company's preferred metric, rose to US$7.59 billion from US$6.04 billion. As a result, the debt to equity ratio worsened to 1.16 times from 0.97 times.

Despite net losses at associates, Trafigura did not book impairments on its investments in Puma, Porto Sudeste and Nayara.

The only impairment was for US$35 billion on its investment in Nyrstar after financial restructuring and recapitalisation of the metals business.

"Trafigura has been delaying the impairment of Puma and other associates despite losses," said Arnaud Vagner, founder of short-seller Iceberg Research.

Trafigura has said impairments are not needed and it is basing the carrying value of its stakes on future cash flow modelling.

Trafigura's total traded oil and refined product volumes fell 7 per cent year on year to average 5.5 million barrels per day, making it the world's second-largest oil trader behind Vitol. Metals and minerals volumes rose 3 per cent. REUTERS