Customers focused on origin, carbon metrics, not just price, Trafigura CEO says

Buyers of commodities have become increasingly focused on the origins of their materials as well as sustainability, not only on price, the chair and chief executive officer of Trafigura has said.

Jeremy Weir told Fastmarkets in an interview on Wednesday January 11 that, before the Covid-19 pandemic, buyers operated on a just-in-time basis, with a focus on price and availability. But, he noted, Covid has highlighted the fact that the logistics that are necessary for such operations can be disrupted.

“Now,” he said, “supply chains are about not just about price and availability, but also timing - who produces a product, what is its carbon footprint, where is it coming from. It’s far more complex than previously.”

“Globalization has turned into a regional trend, and people need to understand traceability, who is delivering and how,” he said.

“Trafigura needs to understand all those dynamics, to ensure the customer can rely on it to provide that product, as well as all the information around the product. The price is not the only factor driving decisions - it is all the other factors in combination,” he added.

According to Weir, who was speaking on the sidelines of the Future Minerals Forum in Riyadh, Saudi Arabia, Trafigura has some customers who will not buy material from a certain location or that is produced by a certain company. Similarly, he said, it has some customers who will not buy material with a high carbon footprint.

All these factors are changing the dynamics of the marketplace, he added.

“We are seeing a change in attitude among our customers, and you need to have good data capabilities and good infrastructure to be able to provide that,” he said.

At the time, with supply chain disruptions driving a desire to diversify reliance away from single-company or country suppliers, it has also inevitably led to a more regional approach to trade, including by governments.

Regionalization has been very evident to date in oil, Weir said, with sanctions imposed in the wake of Russia’s invasion of Ukraine last year.

“Governments are already restricting markets, and certain organizations won’t buy from certain countries,” he told Fastmarkets.

“We are probably also seeing a recognition of the concentration of industry in certain countries, which isn’t appropriate from a supply and security perspective. It’s complex,” he said.

“But it’s not just about Ukraine. People don’t want to be reliant on a single supply source. Instead, they’re diversifying, while attempting to understand and navigate the commercial effects of that decision,” he added.

The commodities sector has evolved as a result, Weir said, creating higher barriers to entry, especially for smaller participants, which have to become more niche as a result.

“We’re seeing niche businesses being established in the oil market at the moment,” he said.

“To me, the industry has changed,” he added. “All kinds of things - including customer demands, capital requirements, the complexity of logistics, fragmentation, regional trading zones, carbon footprints, tracking and tracing - have made it a different business, and it’s why we’re seeing more consolidation.”

Evolving partnerships
These changes have in turn led more traditional trading partnerships to change and new ones to spring up in their place, Weir said.

Taking automotive original equipment manufacturers (OEMs) as an example, Weir said that, historically, the procurement strategies of automakers were based on adequate supply.

“But that’s not the case with battery materials – car companies realize that they have supply issues,” he said, referring to the scramble to secure lithium, nickel and cobalt for batteries and copper for charging infrastructure.

“Every time I look at the projected sales of [electric vehicles], they keep increasing. It may well be there isn’t enough supply but, ultimately, I believe it just requires time for resources to become available,” he said.

“OEMs also want to know the carbon footprint of their products,” he added.

The result is a much more solution-based process with customers, Weir said.

“We have various lithium, cobalt, nickel projects - we’re trying to provide support to major industries around major supply chains because the market is not very well developed,” he told Fastmarkets. “We’re trying to provide underlying support as a business in a complex supply chain.”

A key example is Korea Zinc, which has been a very long-term partner to Trafigura, Weir said. Korea Zinc and Trafigura are currently discussing opportunities for collaboration in the nickel sector, including the potential to jointly develop a nickel smelting and sulfate refining project.

Nickel, a key raw material used in EV batteries, is central to the technologies required to achieve the global targets for net-zero carbon emissions by 2050. In October last year, Fastmarkets published its first price assessment for mixed hydroxide precipitate (MHP), which is increasingly emerging as the preferred nickel intermediary product for nickel sulfate producers.

The goal for Trafigura, Weir said, is to partner with people who have core competencies.

“Our skill base is to identify opportunities, work with partners, maybe de-risk our enterprise in the short term, but then bring in other partners to develop,” he said. “We rotate capital, and don’t focus too much risk in certain sectors. We can bring other partners in and out.”

The company is also working to formalize the artisanal and small-scale mining (ASM) of cobalt in the Democratic Republic of Congo, a sector responsible for millions of livelihoods and which accounts for around 20% of the country’s production.

According to Weir, Trafigura recognizes that artisanal mining exists in the DRC and needs to be addressed.

“In its current form, artisanal mining is not monitored or regulated, safety standards are non-existent, and people are abused and exploited,” he said. “The Mutoshi pilot project that Chemaf ran with the DRC government, Trafigura and the NGO Pact demonstrated that sustainable artisanal mining can be regulated and monitored so that it’s safe and fair.”

This work included removing overburden to avoid hazardous deep tunnels, providing safety equipment, and ensuring that a market-based price is paid to mining collectives.

“If you try to eradicate artisanal mining, then all you do is move it further into the shadows and hurt the livelihoods of hundreds of thousands of people,” Weir said. “We continue to be in dialogue with the DRC and are still very committed to helping to create a formalized, regulated artisanal sector. Ultimately, the cobalt is required by the market too.”

This article was published by Fastmarkets on the 11 January 2023 - https://www.fastmarkets.com/

Article written by Andrea Hotter, Special Correspondent, Fastmarkets.