Concord eyes protectionism-driven arbs for traders after tripling profits, doubling vols in 2017

London-based metals merchant Concord Resources is eyeing opportunities brought about by resource nationalism and protectionism, after announcing results that show how the company's rapid expansion accelerated through 2017.

Concord tripled its net profit after tax, bringing in $20.73 million over 2017 – its second full trading year – representing a 23.9% gross return on average equity.

Annually traded volumes were up 140% to 1.2 million tonnes and revenues jumped 121% to $3.42 billion on its trades, with 400 unique customers worldwide.

Concord sees heightened trade barriers and tax-rate movements as providing future opportunities for physical traders, its chief executive Mark Hansen told Metal Bulletin. 

“Political risk and resource nationalism are the big risks now for traders,” Hansen said. 

“People have been comfortable with the status quo for so long, but they now have to understand that political risk should be at the forefront of their minds as they make investment decisions or sign long-term contracts – whether that’s cobalt and copper in the DRC, copper in Zambia, or the response in Asia to the American metal tariffs,” he said

“This environment of heightened political risk and resource nationalism creates challenges,” he added, “but with those risks come opportunities – where traders can act as intermediaries and… help [the] counterparties manage.”

The results mirror a brighter outlook towards metals from physical traders. The metals trading divisions at large trading companies, such as Glencore and Trafigura, saw their profits rise to rival those of the traditional commodities kings in oil and gas over the course of last year.

Offtake deals
Concord’s results come after the trader secured large-scale offtake deals, including alumina and bauxite, from Noranda in the US and Jamaica, as well as aluminium from Aldel in the Netherlands.

“We put in a solid, diversified performance, by making well-timed moves to begin business in alumina and bauxite, with the alumina market in particular really kicking off last year. At the same time, we avoided margin compression in refined metals and any major pitfalls.” Hansen told Metal Bulletin.

“There was also good trading around the volatility we saw on the LME and a focus on the international arbitrage that developed in aluminium,” said Hansen, who used his previous experience as chairman of Jamalco to play a strong role in developing Concord’s alumina book in partnership with Noranda Alumina, owner of the Gramercy Refinery and St Ann Bauxite mines.

Arbitrages for aluminium
The aluminium market is still waiting for the full extent of US aluminium tariffs to be defined. The specifics could define the market going forward, Hansen said.

“It is not unthinkable now that Australian material could be attracted into the strongest premium market, in the USA, leaving other traditional buyers [to find] units elsewhere.”

Metal Bulletin’s aluminium arbitrage calculator indicated that after the US Section 232 announcement to impose a 10% tax on imported aluminium, but before it was implemented, traders could theoretically make $159 per tonne bringing units from LME warehouses in Busan to Owensboro. 

“Traders need to be both patient, to work out and understand the implications, and responsive: that is, be able to act when the picture becomes clearer,” Hansen said.

The company is involved in trading zinc and copper concentrates. On zinc, Hansen said Concord has seen a supply response to high prices and thus sees a slight loosening of the market.

On copper, he said: “We are pretty [much have a] consensus: refined copper demand is pretty good and there is some upside risk, although the concentrates market remains well supplied.”

Concord could also see further volume growth further out, having invested in, and become the sole marketing agent for Nevada Copper’s Pumpkin Hollow copper mine, which is due to begin commercial production in 2019.

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