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Derechos | Equipo Nizkor
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| Information | | |
Derechos | Equipo Nizkor
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31Mar14
National resource giants plot varied paths to global goal
In teaming up with Cargill to create the world's largest sugar trader last week, Brazil's Copersucar has joined a small but growing club of national resource champions steadily transforming the commodities landscape.
In the boldest international move in its 50-plus-year history, the world's top sugar producer will form a 50-50 joint venture with global trading powerhouse Cargill, plugging its 47 sugar mills into one of the world's biggest logistical operations, with customers stretching from Chicago to China.
It was a blockbuster deal for the global sugar market, but perhaps even more importantly it opened up a new path for other state-owned or nationally powerful commodity producers, those with domestic strongholds and international ambitions.
From Russia to China, Brazil to Saudi Arabia, national giants are going global at an accelerating pace, eager to squeeze more profit from the lucrative global commodities supply chain - a trend that, until now, threatened to crowd out the global merchants who have long dominated international trade.
Some are simply buying what they want, such as Russian oil firm Rosneft's purchase of Morgan Stanley's (MS.N) physical oil business; others like PetroChina (601857.SS), which has been looking to hire traders in Houston, are building it organically.
They are racing in amid once-a-generation reshuffling of commodity industry investors, with many global banks bailing out of the market due to regulatory pressure. The grab for market share could last for years, experts say.
"It's a game of musical chairs and the seats are getting much more valuable," said Chip Register, a long-time commodity executive, currently at Sapient Global Markets.
"For anyone who's got the capital and the interest, it's a land grab."
Same Aim, Different Routes
While the aim is the same, the routes to success vary and in just the past three months, companies have several different approaches: buy a business wholesale, secure strategic assets piecemeal, and go it alone with their own shop.
Copersucar, a collective of 47 privately held mills steeped in Brazil's agricultural roots, has entered uncharted territory by agreeing to a 50-50 joint venture that excludes any physical assets - keeping control over the most strategic parts of its business while leveraging Cargill's global network.
While similar arrangements are not unusual in other niches of the soft commodity markets, none come close in terms of scale, scope and the half-and-half corporate structure.
The deal arrived just two years after Copersucar launched a global expansion, opening its first offices in Hong Kong and the United States, the world's two largest consuming markets.
The deal is a lower-risky, lower-cost way to catapult the Brazilian enterprise into the top league of the fiercely competitive sugar trade, avoiding the expense and execution risk of buying a company or hiring expertise, experts said.
But it still presents challenges. Merging resources, in this case mainly traders, can be daunting and throw up cultural issues.
Even so, with geopolitical turmoil, drought and disease roiling global supply chains, traders want to control more of the supply chain from producing and processing the raw material to shipping it to customers around the global.
"(Merchants) won't want to be subject to someone throwing a monkey wrench into their business," said Joe O'Neill, an independent consultant on softs trading and former executive at ICE, New York Board of Trade and the New York Cotton Exchange.
Other Routes
It is far from clear which model will fare best, but the stakes are rising - especially for the global merchants who have long acted as the middlemen between resource-rich domestic giants and global consumers.
"I think the differing approaches stem from their own internal capabilities, whether they have the ability to grow that organically or realize they just have to buy it," a senior trading executive at a global commodities merchant said.
Over the past month, Chinese trader COFCO Corp CNCOF.UL has made an aggressive grab for two overseas grains operations - as Beijing develops its own global agriculture trading house. It will scoop up a majority stake in Dutch company Nidera and is in talks to buy into Noble Group's (NOBG.SI) agricultural arm.
Increasing its footprint outside of its home market in the capitally-intensive business may throw up pitfalls for the company even with backing from Beijing.
Foreign companies and newcomers on a market can encounter cultural obstacles. Sempra's energy traders struggled to settle into being run by JPMorgan Chase & Co's (JPM.N) after the Wall Street bank bought Royal Bank of Scotland commodities business in 2010.
Mistakes are easy as a newcomer too.
"If you're hiring organically, you need to know what you're doing. If they're just relying on someone to run the business without a trading backdrop, the chance of success drops quickly," said Register.
[Source: By Josephine Mason and Jonathan Leff, Reuters, New York, 31Mar14]
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