The World for Sale
Glencore, Vitol, Trafigura and Cargill; the definitive book on the trading houses.
Summary
Blas and Farchy, both commodities journalists at Bloomberg, write the history of the physical commodity trading houses, principally Vitol, Glencore, Trafigura, Cargill and their predecessors including Philipp Brothers and Marc Rich's firm.
The business model is the substance. These firms make money from arbitrage across location, time and quality: buying where a commodity is cheap and delivering where it is expensive, storing when the forward curve pays for it, and blending grades to meet specifications. The advantages are information, obtained through physical presence and relationships in producing countries; logistical capability including ships, storage and pipelines; and access to financing large enough to hold physical inventory.
The political material is what makes the book uncomfortable. Blas and Farchy document trades with sanctioned regimes, payments to officials, the funding of one side of civil conflicts through prepayment for future production, the role of traders in keeping apartheid South Africa and revolutionary Iran supplied, and the specific case of Glencore's operations in Africa. They document Glencore's guilty pleas and the settlements paid by several firms.
They also cover the transition from private partnerships to public companies, and the effect of that transition on disclosure and on behaviour. The book is journalism with extensive sourcing and the firms cooperated selectively. It is the most complete account of an industry that operates with almost no public visibility despite handling a substantial share of the world's physical commodity flows. The explanation of how physical arbitrage actually works is the part with the widest application.
Key takeaways 8
- Commodity traders make money from arbitrage across location, time and quality rather than from directional bets on price.
- Information obtained through physical presence and relationships in producing countries is the industry's actual asset.
- Access to financing large enough to hold physical inventory is the barrier to entry rather than any specialised knowledge.
- Prepayment for future production financed governments and, in several documented cases, one side of a civil conflict.
- Traders supplied sanctioned regimes including apartheid South Africa and revolutionary Iran, which was the source of the largest margins.
- Political risk and legal exposure are the industry's cost of doing business, and several firms have pleaded guilty and paid settlements.
- The transition from private partnerships to public companies changed disclosure requirements and constrained some previous practices.
- These firms handle a substantial share of world physical commodity flows while operating with almost no public visibility.
Who should read it
Investors and operators in commodities and logistics who want the mechanics of physical arbitrage and an honest account of what the business has involved.
Similar books 6
Chosen by shared topics, the entries that hold them, and the people who recommended both.
Marc Rich, the founder of modern commodity trading.
Recommended by: Mohnish Pabrai
The family-owned firms, from Cargill to Bunge, that controlled the world grain trade.
Recommended by: Mohnish Pabrai
Six materials the world runs on, sand, salt, iron, copper, oil and lithium, traced.
Insider: the UBS banker whose disclosure ended cross-border Swiss secrecy.
How offshore finance works, with Britain and the City of London at its centre.
Why years of low prices and Chinese demand set up a long commodity bull market.
Recommended by: Mohnish Pabrai
Where it sits in the reference 6
Topics