Interview with Jeremy Weir, CEO of Trafigura | Fast Forward podcast episode 3 transcript

Read the full transcript from episode three of Fast Forward podcast with Andrea Hotter on geopolitics and the energy transition with Trafigura's Jeremy Weir

You can read the full transcript of our interview between Andrea Hotter and Trafigura Executive Chairman and CEO Jeremy Weir for Fast Forward podcast below. Or, listen to Fast Forward podcast on SpotifyApple PodcastsAmazon Music or wherever you get your podcasts.

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Full episode transcript

Andrea Hotter: Welcome to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets. And if you’ve been listening to the series, you’ll know that my colleagues and I are taking a look at some of the main issues impacting the critical minerals essential for the world’s energy transition. If you missed the first two episodes, it’s not too late to go back and listen to them. You can find them on Apple Podcasts, Spotify, and wherever you get your podcasts.

This week, we’re going to take a look at the influence of geopolitics on the energy transition. Many of the important questions in commodities nowadays are about geopolitics. Where does that commodity come from? Is it important for national security? And how do we know it has a secure supply chain? But it obviously also relates to foreign policy and international relations. It’s a very big topic and we’re going to handle it with Jeremy Weir, CEO of Trafigura, a major commodity trading house and one of the world’s largest suppliers of minerals, metals and energy. Jeremy, welcome to the podcast.

Jeremy Weir: Pleasure to be here. Thank you, Andrea.

Andrea Hotter: So Jeremy, you’re a geologist turned derivatives trader. You worked on the commercial side at mining and metals companies in your home country of Australia. And then you joined Rothschild Bank in 1992, before moving to Trafigura in 2001, where you went on to become the CEO in 2014. So, you’ve seen a few commodity cycles and running a large group like Trafigura, which is active in 156 countries, you have to navigate global geopolitics on a daily basis. With all of this in mind, I’d like to take a step back at the very beginning and talk about the role of a commodities trader.

Commodities traders are shrouded in a kind of legendary mystery. Many believe they operate in the shadows, they’re highly secretive, they trade as if they’re gambling in a casino. And there’s a view that commodities are highly speculative and far riskier than other asset classes. So, I wondered, can you demystify things a little bit and perhaps bust some myths along the way for us. So, to begin with, what exactly does Trafigura do and why do you think it’s helpful to the commodities world?

Jeremy Weir: I think one of the things is if you talk about dark histories, et cetera, that’s not our business. Our business is actually about supply chain management. And you have to be able to do that regardless of the environment that you’re operating within. And so, if you wind the clock back to pre-Covid areas, there were open markets everywhere. Everyone was focusing on price and efficiencies and one of the clock forward to where we are now, we’ve been through Covid, we’ve got geopolitical issues and we’ve got highly fragmented supply chains. And our function and our role really is to buy the commodity, move it to the location where the consumer needs it in a highly complex environment.

And yes, you do see a lot of price volatility and you see a lot of freight price volatility. We have to navigate that. And you can’t do that if you’re a speculator, you can’t do that on a consistent basis and a profitable basis long -term, to me it just doesn’t work. And so therefore our company has been in existence for over 30 years. We’ve been able to do this for over 30 years. So therefore actually our business is about risk mitigation in a highly complex and volatile marketplace. So really what we do across the entire spectrum of commodities we trade, so it’s the oil barrel, it’s the molecule of gas and LNG, it’s the electron, it’s non-ferrous minerals and metals and bulk commodities. We have to move those commodities logistically from source to end consumer in a transparent and appropriate manner, in a manner which ensures price competitiveness because it is a highly price competitive environment.

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Andrea Hotter: Yeah, I remember you telling me previously that first and foremost Trafigura is a commercial trading company and that is the engine room of the business. Trafigura had revenues of over 244 billion last year. In a marketplace where the participants range from little fish to big fish, commodities traders that leverage both the physical and paper side of the market, such as Trafigura, are very successful big fish. So, what does really influence the price? Is it the large trading houses like Trafigura? Do trading houses such as yourselves want to be money-making solution providers, as you just described, or kingmakers?

Jeremy Weir: We’re not sitting there actually having necessary a price direction and a view on price direction of what we do. We’re effectively looking to mitigate the risk. Yes, we have over $240 billion turnover last year. But if you look at the margins around the business we trade and the volatility of the underlying market, actually those margins are quite small in terms of being able to navigate that.

And so therefore in our business, higher or lower prices don’t really benefit since we buy and we sell. We typically expose the commodity price. We have to manage that. There’s other people which have directional views on prices and markets, but that’s not, if you like, our competency. I would say, given that we cover a lot of different markets, we do have very strong analysis. We do understand the dynamics of marketplaces.

And therefore, we’re able to communicate those with our customers and we have our views and we’re able to orient our business, if you like, around that. But at the end of the day, we’re trying to manage price risk, manage basis risk, which is the variability to underline index prices. And that’s what we have to do efficiently, effectively. I think what is important in today’s world is there seems to be a lot more correlation across various commodities.

There is interlinkage. And I think having not only the global footprint that they have, as you mentioned, we did business in over 150 countries last year. But the fact that we’re involved in multiple commodity streams really help us understand the global dynamics of marketplaces. And that’s why we’re starting to see some of the smaller independent traders find it more difficult in today’s environment because it’s just very difficult to survive if you’re a regional and specific commodity.

Andrea Hotter: Yeah. So sometimes bigger is better. Where does Trafigura really care about being dominant in the markets and where do you want to be involved?

Jeremy Weir: I think dominance is not really the right word. We are service providers. Really, at the end of the day, if I move back to Covid, we had a lot of customers which were locked down at home, didn’t really understand what the current dynamics of the markets were. We had a lot of uncertainty. We were able through our market positioning, when I say market positioning, our overall coverage of markets across various commodities, really able to help them navigate through that. So we’re there to provide a service to customers.

And it’s moving just not into the underlying commodity price. Now it’s moving to the carbon markets and other areas, emissions trading, emissions reporting. So these types of things are the things that we really, really want to try and do to assist our customer base as the best we possibly can.

Andrea Hotter: Yeah, I’m glad you brought up customers here because I’d like to talk about what we’re here to talk about today. Obviously, geopolitics. Do you think there’s been a lasting change on behalf of your customers, the producers, the consumers that you work with to more proactively manage the commodity risks in their businesses because of the changing geopolitical backdrop?

Jeremy Weir: We just have a much more challenging marketplace ahead of us in many different aspects. If you look at the mining business, there’s been a lot of talk in terms of managing permitting, managing indigenous issues, local communities, the challenge that exists in the inflationary aspects of new mining.

So therefore, that’s more complex. Then you look at the overall supply chain in minerals and metals as well in terms of there’s historically been a focus on mining, but now there’s also a focus on processing, the concentration risk about processing.

And then you’ve got the emissions footprints that really weren’t something was discussed a lot five years ago. Now it’s very much at the forefront of people’s minds. Then we’d look at AI and other issues. I think it’s a far more complex supply chain than we’ve ever seen. I don’t see a reversion of that, at least in the next five to 10 years. And so therefore customers around the world, both on the producer and the consuming sectors and processing sectors actually have to try and adapt to these challenging environments.

And quite frankly, organizations such as ours should be there to help them.

Andrea Hotter: Yeah. And transparency obviously is important here. Technologically driven advances have really helped transparency, whether that’s the information flow that you’re talking about, the insight into payments, logistics, traceability through the supply chain, all of those things. Do you think that that transparency hinders or helps commodity trade houses? Or maybe it’s a combination of both.

Jeremy Weir: Look, there’s market transparency, but also as a corporation, you have to make decisions. And from our perspective, we’re a large organization. I think I’ve often been found to say, I think it’s important you’ve got an obligation to society and part of that obligation to society and stakeholders that you need to be best in class and people want to know what you do, how you do things.

That’s why even as a private company, we do publish our annual results. We have for a number of years and also our sustainability report and that is a ‘warts and all’ report. And I think it’s important that people understand who you are, the challenges you face and how you operate.

And that’s helped us actually increase our stakeholder base. For example, we’re dealing a lot more with governments and not only just from helping them understand the complexity of supply chains that exist around the world, but also across the various commodity streams, but also from a regulatory point of view, to help them understand some of the challenges that exist.

Andrea Hotter: And those are all things I want to talk about with you today as well. Trafigura, just whilst we finish the little bit about the role of the trader. Trafigura has adapted its portfolio to focus on the energy transition areas, such as renewables, carbon markets, which you’ve also mentioned. Do those that don’t adapt fall by the wayside and become obsolete? I mean, do oil traders, coal traders still have a role going forward?

Jeremy Weir: Oil is still very much a part of the energy mix today. And so therefore what we are is transitioning. I think we’ve seen probably a recognition that that transition will go in fits and starts because it depends on the availability of raw materials, the technology, and the capital availability that exists. And I think that’s where we will see changes.

But from our point of view, we have our own views on life and we direct our business in a certain way. And really, it’s just reflective of what society demands up. As we transition, we’ve got a platform which has capital availability, knows about logistics, can manage risk. And so therefore, what we just do is transition the business as society demands and stakeholders demands. And so therefore what we are doing is preparing ourselves for the future, whatever pace is dictated by the marketplace.

And I think we’re going to be well positioned for that. And so therefore that’s the way we look at the energy transition. But I think it’s important to recognize, I think there is going to be a quite a long tail for hydrocarbon usage because we just literally have many different demands on energy requirements, development of economies in the global South.

And so therefore we have to recognize those and try and find that difficult medium.

Andrea Hotter: They don’t call it an energy transition for nothing. Let’s move on to geopolitics, which has obviously made the world a lot more complicated. One of the ultimate representation of the worst of geopolitics perhaps is physical conflict in the form of war. And clearly the commodity sector has been significantly affected by Russia’s invasion of Ukraine. Similarly, we’ve seen a conflict in the Middle East between Israel and Palestine.

Let’s start with what this has done to logistics and the production as well as transportation of commodities. I’m thinking here about the Black Sea and the Red Sea shipping lanes. Lengthy journeys presumably means higher costs and increased maritime emissions?

Jeremy Weir: Exactly. What we have seen is, particularly in the tanker market, you’ve seen the evolution of the Grey Fleet, which is less known holders or owners of those vessels. And that’s something in the region of about 13 to 14%, I believe, of the tanker fleet. So it’s very significant.

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We’re obviously seeing much longer journeys as a result of the conflict and due to sanctions, they’re all barrel traveling to certain locations and not to others. So therefore, it’s creating a problem. We’re forecasting something around about a thousand barrel a day increase just in the bunkering market, just because of the increased shipping journey. So yes, it’s causing problems. We’re also seeing very high rates in terms of the tanker market. And if you look at the shipbuilding market as well, we’re seeing yards full. Be it on tanker markets or LNG carriers, et cetera, in Korea and other locations simply because of the demand.

Andrea Hotter: And you mentioned sanctions there. You know, obviously sanctions or high trade tariffs have been imposed against Russia in a bid to stifle out its economy. When you hear sanctions are imposed, what happens at a company like Traffic Europe? What’s on the checklist as you work to show you’re compliant? Talk me through what happens.

Jeremy Weir: Well, basically we’ve got a very active and attentive compliance team because you have to be in today’s world. Obviously have relationships with the various regulators, but they keep us extremely well informed of any changes. And as soon as there’s a change to some sort of sanctions list or be it the SDN list or whatever, we’re very much aware of exactly what they are. It’s reported and advised to the company globally and particularly the commercial teams and managers advise of what impact it has, how to behave, what the challenges are, et cetera. And we’ve got all the checks and balances there as well. It is extremely complex because you’ve got different regulatory environments and therefore you have to be aware as a multinational company with employees holding different passports that you have to be cognizant of that and making sure you’ve got the right procedures in place to ensure you comply and protect the organization and your employees as well.

Andrea Hotter: Yeah, that’s one of those complexities you mentioned there, the differences between the regions. We’ve seen that play out with metals and the London Metal Exchange warehouse stocks. Much of the material held in LME warehouses now is Russian, which is particularly important for aluminium, nickel and also copper. We saw that play out in the US when COMEX prices soared and companies struggled to make deliveries. And the LME is obviously following sanctions imposed by the UK government, but you talked about complexities. Talk me through what you feel about those complexities when they add these differences between the regions?

Jeremy Weir: Well, often it can be very complex. For example, as you said with the LME and the recent reporting, we’ve had requirements around that, and particularly with respect to deliveries, and the UK government made some further changes and further clarification. So we’re able to understand those better, but there was a period of time where it was a bit difficult to understand and people weren’t exactly sure. So the proper thing is engagement at all times to really understand what are the regulators trying to achieve and how they best been interpreted. And our compliance team work with our legal teams to try and understand.

I think one thing which is also important to recognize in today’s world is that from a compliance perspective, for compliance to be effective within an organization, they can’t be seen as a policeman. This is one thing which has taken some time, but I’m actually very pleased that the compliance division and how they work with the commercial teams has progressed over the last five plus years. They’re really seen as a business partner. When there’s issues where people are uncertain, people rather than just, okay, go on the fly and do a trade, they actually go straight to the compliance people. In meetings when I’m talking about businesses we’re not quite sure of, as I said, nine times out of 10 or more, there’s always been interaction with the compliance department. So I think it’s very important to have that culture in an organization such as ours. Otherwise in today’s world, it’s going to be very, very difficult to comply.

Andrea Hotter: Yeah. And it probably makes a difference for the compliance team to feel valued in a company. Usually they’re the ones everyone’s running a mile from, but no, it’s good to hear. I’m just curious your view. Some people are comparing the current geopolitical backdrop for commodities to the eighties when there were sanctions against Iran, Cold War sanctions against the Soviet Union. I know that predates your professional career a little bit, but what do you think?

Jeremy Weir: I think we’ve got a very fragmented world. We do engage with governments around the world. You can start to see how policy is starting to get defined and what the objectives might be regardless of what side of the house you’re on. And we’re starting to see some definite lines being drawn. And I think it’s going to take quite a bit to turn that around. So I do see we’ve got a very challenged environment. I’d like to think that levels of communication and technology and the fact that people travel a lot more and awareness would start to address some of these issues, at least from a social perspective and as a result, business perspective. But all that being said, I think we have got a very, very challenging environment ahead of us.

And I just hope that we don’t go into a more extended period of conflict or an expanded geographical conflict.

Andrea Hotter: We’ve obviously also seen not just physical conflict, we’ve seen trade wars escalate over the years, most notably between the US and China. We saw the Section 232 tariffs heat up on aluminium and steel. Now we’ve got Section 301 tariffs. We’ve seen 100 % tariff on imports of Chinese electric vehicles to the US, tariffs on more than two dozen critical minerals, including graphite, tantalum, tungsten. There are tariffs on semi conductors and advanced batteries. And it’s not just one way. China also has imposed export controls on gallium and germanium and banned the export technology to process rare earths. It’s going on everywhere. How do you navigate all of this as a commodity trade house?

Jeremy Weir: Well, I think at the end of the day, it’s up to the government to determine what they do. It’s not up to us. And what we have to do is effectively abide by the rules and the regulations within which we operate.

So all it really means is that we have to ensure that we’re really up to date in terms of what tariffs are being imposed or what regulations are being imposed and just ensure you’re at the sharp end of that and comply. That’s it. There’s no alternative to that. But I think at the end of the day, we still are a company which has to provide services and commodities to a global customer base. And we will continue to do that while we can. One thing I think is important is open market, open trade has developed certain supply chains in certain regions to rewire that is going to take a significant amount of time and effort and capital. And I just think the regulators and the governments probably need to appreciate how intertwined some markets are. And it’s not like a Silicon Valley company where you just do something very quickly and you’ve got a new app or whatever it might be. These are large industrial complexes and complex supply chains, which if you want further diversification, it’s going to take time, a lot of time.

Andrea Hotter: Yeah, with that regulatory backdrop, the US inflation reduction now, the EU’s Critical Raw Materials Act, many initiatives, the implications to climate, trade security, foreign policy, they’re potentially enormous in terms of the subsidies, the tax policies and so on. We’re also seeing some of the key commodities that Trafigura deals with being deemed critical, whilst others, we talked about coal and oil being viewed on the way out, even if it is a transition.

It’s not just in the West, China is calling for Made in China 2025, the Belt and Road Initiative. How is all of this changing the nature of commodities trade? You alluded to it there, but is it creating new areas where you say, I’m just not going to get involved in this anymore because it’s not worth it?

Jeremy Weir: Well, there’s some business you just can’t do and some counterparties you just can’t deal with. So you don’t quite simply pass your KYC standards, whatever it might be.

But ultimately, we do have to deal in challenging environments. We have to move materials from sub -Saharan Africa, which can be very difficult to international marketplaces, and we’ll continue to do that. Now, what it just does mean is that the fragmentation that we see in certain marketplaces is inflationary because the costs of moving the material is becoming more expensive because it’s not as streamlined as it used to be. But we will continue to do business in the commodities we operate within and the markets within which you operate in according to international regulatory requirements to the best of our ability. And we may see some of these changes over a period of time simply because costs are too much or commodities are no longer required. But while the commodity still moves and we still are able to do so, we will do it.

Andrea Hotter: I’m curious as to what you think is the new oil in geopolitics? I mean, is it nickel? Is it copper? Is it lithium? How is Trafigura looking at the markets? It seems every few months there’s a new flavor of the month, but I’m interested to hear your view of this.

Jeremy Weir: I think we’re fixated on oil history. If you even think about the oil market, if what we’ve seen over the last six months that happened pre the new oil production coming out of the US and different technology, you would have seen oil prices probably with a three digit number. You didn’t because you had diversification of supply. So therefore, if you’re looking at what is a new oil? I don’t necessarily sort of look at it that way. I look at what are the specifics of the underlying commodities? What are the demand signals? What are the supply signals? And historically, you might have groups, for example, non-ferrous metals together. It’s not the case anymore. Nickel, quite frankly, with what we’re seeing in Indonesia, is in abundance. Now, while some governments might say that it’s a critical mineral, maybe it’s protecting some industries. But, you know, if you look at copper, for example, it’s fundamental for moving the electron.

And the electron is going to be a very important part of the energy stack on a forward looking basis. And therefore, while we’re redoing the grids, if we’re looking at AI and other things, we’ve got a real deficit of copper going forward. I think that’s been well voiced by many market participants. And we have to work out a way to meet that demand signal. But I’m calling it new oil. I think the energy stack is far more diversified. There are different forms of storage of energy as well.

We’ve got 900 carbon falls, so it’s just a much more complex mix on a forward-looking basis.

Andrea Hotter: You know, that division, critical minerals are good and fossil fuels are less good. Trafigura has obviously gone into renewables as a new pillar for the group. Was that inspired by the energy transition, so to speak?

Jeremy Weir: I think what we’re trying to do is if you look at the energy mix on a forward-looking basis, it’s going to be a combination of hydrocarbon fuels and non-hydrocarbon fuels and the electrons. Given the core competency that we as a company in terms of logistics, moving, in terms of supplying commodities, goods, energy, what’s the future of our company? What’s the future of our company product mix on a forward-looking basis? And the thing is you just can’t switch these things on and off. You’ve got to understand how do I move ammonia? How do I manage hydrogen? Given the volatility on renewable energy, how do we provide power and electricity to companies? So those sorts of things, we need to understand them. And those skill sets have to be built up over a period of time. So our view is quite simply, let’s ensure that we have a view on where we think the energy market and the energy transition is taking us. Where does Trafigura fit into that new world, can I say?

And how can we develop the competency to ensure that we’re able to provide those services to a customer base? But also let’s build that competency over time. So when the society demands, we’re really in a very, very strong position to provide those services. So therefore the platform of the company just pivots. It pivots as we move, as we go through that transition, but you can’t just turn the switch on and off. It’s five years plus of building core competencies in underlying markets. So then you’re able to provide the services competitively.

Andrea Hotter: So that diversification is interesting because we all like to talk about globalization and free trade, but there’s a huge amount of polarization underway. When Western governments talk about friendly nations and working with them, they’re typically really talking about diversifying buying away from a reliance on China. They’re all talking about the desire to create resilient supply chains, but aren’t we adding to their volatility by moving away from China? The point I’m trying to make here is, don’t we just need to get over this east -west divide? What would happen if we brought down the barriers instead of raising them?

Jeremy Weir: Well, I think obviously we’ve seen China has through three decades of industrialization and developing its economy, which has been extremely successful. It’s become quite resource hungry, but it’s also built an incredible competency in certain market sectors, particularly in metal processing. Now, they’re quite light on resources. Okay, they’ve got very little copper, little bit of zinc and lead, obviously a lot of coal, but they need the minerals and metals to process it for the development of the economy. They’ve done that very well. And if you look at who have built the most smelters in the last three decades, probably 80 % plus has been built in China. So they’ve developed that. And I think up until recently, the West has been pretty comfortable with that. But as we look forward, and even if you look at what happened with Ukraine and the European energy, there’s a parallel there by saying over -reliance on one particular sector is not necessarily a good thing or not strategically a good thing. So therefore there’s a resetting going on. So we just have to, I think, have a balance between what is required, what is a sensible strategy globally going forward to provide a diversified supply chain rather than a concentrated supply chain. That’s what the world is starting to grapple with at the moment. And it’s going to be very interesting to see how that plays out. But I just think that’s the trajectory. And quite frankly, it seems to be a relatively sensible one.

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Andrea Hotter: Do you think the West can ever really achieve that goal, decoupling its incredibly integrated supply chains from China, given the dominant position that the country has in processing, manufacturing, and as a consumer of commodities?

Jeremy Weir: Well, historically you’ve seen processing around the world. And the thing is, what is the economic dynamics of that at the moment? We’re seeing incredible challenges. If you look at the smelting industries of copper and zinc and lead at the moment, quite frankly you question the viability of these occurring outside of China. But I’d like to think that’s a cyclical thing and that will change. But look, you can argue, is it better to build where the energy source is there or where the resource is? So there may be different dynamics at play here, which can justify being built in Mexico, being built in South Korea, being built in Sub -Saharan Africa, being built in other consuming areas. So I do think it’s appropriate that they can be built outside of China. And I think it’s just a further diversification.

I think the other flip side is obviously China is a big exporter of finished product. And so therefore they need those international markets as well. It’s not just the domestic market, which is satisfying the requirements of the production.

Andrea Hotter: Right, exactly. And that comes to an interesting point. Obviously, mineral wealth is fixed geographically. You’ve either got it or you haven’t got it. So if you’re not a resource rich country, you’re going to need to work with partners that are, right?

Jeremy Weir: Correct. And look, you’re starting to see that with alliances being built at the moment.

There’s a different mix of player in today’s world. You’ve obviously got government players, government institutions from the Middle East coming into the mix now, rather than private enterprise and where historically it’s been Chinese backed enterprises been quite adventurous from an expansion point of view, particularly in a higher risk area. So the dynamics are changing very rapidly.

Andrea Hotter: With those partners, that change obviously brings a change to the financing backdrop you’ve mentioned.The sovereign wealth funds, new players coming in. I mean, how is that changing competition? Because I assume the drivers are very different for those types of investors.

Jeremy Weir: There’s two parts to it. One is from, if you like, people seeing the energy transition and how can they play and how can they diversify. Maybe, for example, if you looked at the Kingdom of Saudi Arabia, how they diversify in their investment portfolio, how they’re saying, well, we can possibly be a processing hub, then develop a mining industry. I think they’ve got some long -term planning in place and now they’re looking at how they further expand a field through that process. Obviously, you see investments from the UAE as well. You’ll see investments in certain sectors like in Zambia. But I think the other areas is not just from a long-term positioning with respect to the supply of raw materials, but also actually the demand side where we’re seeing governments recognizing of what critical minerals is. If you spoke to certain governments 10 years ago about critical minerals, they would have been looking as though you’re coming from another country or out of space. It’s something which is quite new and they recognize the importance of minerals and metals to the energy transition. So therefore we’re starting to see government starts of European credit agencies and other import export agencies providing finance. And we as a company, for example, are accessing that form of finance and providing those commodity flows, be it LNG into Germany, into Europe, into Italy, into metals, into Europe, into South Korea, into the other governments. And so it’s not just the equity side of the business, but also in terms of securing flows for future demand on a long-term basis, which is interesting.

Andrea Hotter: Yeah, for sure. And I’m really curious to hear a little bit more about the partnership that you have with the US government in the Lubito corridor of Angola. We had Helena Matza, the State Department on the podcast.

And she was talking about the import -export trade route that you’re creating between the African Copper Belt and the Atlantic coast of Angola. Can you tell me a little bit more about this from a Trafigura perspective?

Jeremy Weir: Interestingly enough, it was the old Zaire railway line, which was destroyed during the Angolan Civil War. And since then it was being rebuilt. And what we have done is basically there was an open tender held by the Angolan government, which we together with partners were successful in that tender. And effectively it’s a 30 year concession where we are operating that railway line. There’s a significant capital investment to upgrade the railway line on the Angolan side, but also refurbishment on the DRC side. And that has a massive impact. It’s going to initially, post ramp up, have a 1 .5 million ton capacity. And what that means is that you will basically take copper out of the DRC, out of the copper belt to the coastline in roughly say five working days, give or take. Currently it takes five weeks by trucks and you’ve got massive congestion obviously has a huge impact on emissions footprint, on society, on road degradation and security of supply because there’s often a lot of robberies, quite frankly, which take place. So really it has a massive impact and that will, I think, drive a lot of inward investment into the region. It’ll also increase trade through Angola and have a huge impact of opening up the whole Angola railway line. So it’s a new economic artery for the region. It really has a positive impact.

So we, together with partners, we’re working with the DFC on a financing. It’s been a very constructive process and very pleased as to the progress. And I think we’re hopefully at the final stage of finalizing that. I think it’s going to be a very, very successful partnership.

Andrea Hotter: Great. I look forward to seeing how that develops. I’d like to turn now to the carbon markets, which I think have been a really important development influenced heavily by climate targets set through international agreements like the 2015 Paris Agreement. We’re seeing the introduction of the carbon border adjustment mechanism by the EU, the emissions trading scheme too. We’re seeing geopolitical battle lines being drawn between countries over climate targets and critical minerals. I wonder whether the creation of a global carbon market, which is what we all seem to want, is actually being held back because it requires coordination across borders to prevent the so-called carbon leakage that we hear about.

Jeremy Weir: I don’t know how many emission trading schemes we’ve got around the world, but it’s a lot and they’re really moving very quickly. And I think the main thing is that it is fragmented and we haven’t got a consistent carbon price around the world. And quite frankly, I think it’s going to be very, very difficult to get there. But what we are seeing is, for example, with the carbon border adjustment mechanism, people concerned about fiscal leakage. And so therefore new schemes have been established pretty quickly. By developing a carbon price, I think that’s a good thing. So therefore we can start to understand what the cost of emissions is and we can start to price that accordingly. We’re very much involved in the market in terms of we have a joint venture with Palantir for Scope 3 emissions tracking. So we can start to understand what the emissions footprint is on basically when you acquire a ton of copper in a certain location or a barrel of oil, whatever it might be, you have a high degree of granularity of what the emissions footprint is around that. Other industry members are saying, let’s get the data. Let’s try and first of all, understand what the emissions footprint is.

Once it’s understood, then we can start to deal with it. Then we can start to say, how can we reduce it? What’s the technology around reducing it? And then more importantly, what are the other mitigants? And so therefore we’re spending quite a lot of time on nature-based removals. We’ve got a carbon trading team, which is very active in the marketplace, providing services to the industry, but also looking at nature-based removals, which are Article 6 compliant to just see how these can be developed and how can these be applied. And we are seeing a lot of interest from some industries around the world.

Andrea Hotter: Yeah, fascinating. And it all plays into the role of environmental, social and governance standards or ESG and how they’re being impacted by geopolitics. I find this a really interesting topic because auto OEMs on the one hand are expressing concerns, let’s say about the standards at some nickel production facilities in Indonesia, which also have a major Chinese shareholder base. While at the same time, they’re also moving to invest in Indonesia themselves.

And as far as I can tell, no one stopped buying Indonesian nickel on mass. So which is it? Is geopolitics driving momentum and sustainability or is it just not there?

Jeremy Weir: You’ve got many different vested interests on this one. I think what we’re seeing is huge technological advancements in nickel production. There are some environmental concerns, not just on the process in some of the technology, but also from the mining perspective. That’s been highlighted for those which you could argue are higher cost and disenfranchised in that process. But I think one of the issues we do have, and I think it’s a common concern, is that we don’t have standard ESG standards. So what standards do we have and how do we actually comply with these standards and how can we benchmark against these standards? So therefore we can then start to really address the problem.

But coming back to your particular question, I do think we are having different standards across different regions. I do think things like carbon tax on nickel, people looking at carbon pricing and saying, well, why aren’t we pricing differently? Should we have a green premium on certain minerals and metals? Until we have a carbon price, which is acceptable, even if it’s under different emission trading schemes in different regions, we’re not going to get any green premiums until we have actually a defined carbon price.

Andrea Hotter: Also, that obviously really depends an awful lot on tracking and tracing. I mean, there’s a regulatory drive to monitor the origin of materials, which is also being in part driven by this geopolitical backdrop, which means we need to have a much better handle on the traceability of supply chains. There are some decent steps being taken, but there’s a long way to go. As we improve, as we know more where things come from and how they’re made, do you think where the line people draw to not do business become firmer and more solid? That fragmentation becomes more structural as it were?

Jeremy Weir: I think you’ll have a differentiator. It does come back to economics initially. Okay. I do think you’ve got to get a carbon price.

But even if you look at carbon or if you look at other ESG standards, responsible sourcing, all these sorts of issues, I think some people will say, no, I’m not prepared to buy that. Even in our own process of responsible sourcing, we do our own KYC analysis of our counterparties. Some people we won’t buy from, quite simply. So therefore there are those standards that companies have. And once you have transparency around that, it’ll make life a little bit easier. But quite frankly, the trend is inevitable. We’re in a certain path and trajectory. And I think it’s important that we continue that.

Andrea Hotter: Jeremy, I could dive into all of these topics much more deeply, but I know we’ve only got a limited amount of time. So I do want to ask you something we’re going to ask all of our guests, which is what one thing we should be looking for, but we might be ignoring. Where might we have the blinkers on at the moment?

Jeremy Weir: I think one of the issues is the power markets. First of all, the capital investment in renewable energy is huge. But the efficiency is still not great. If you look at the solar side of things, even in China, we’re probably looking at high teens efficiency. If you’re looking at tracking solar panels, maybe in India, I’m hearing mid 30%, which is very, very high wind, et cetera. So therefore, installed capacity doesn’t mean that’s the available power. And at the same time, we’re trying to decarbonize. So we’ve got huge amounts of pressure on the existing systems. We’ve got out of date grids which haven’t got the capacity to deal with the huge amounts of future power requirements, even in developed markets. And that’s before we start talking about emerging markets. So volatility in surges of power, that’s a problem. And then you’ve got the AI side of things, data centers and that. So we look at what the usage of industrial power is now, but then we’ve got a whole lot of other usages and demands, which are going to be extraordinary. So therefore we’re not only trying to deal with an energy transition, we’re actually trying to deal with massive increased capacity or power requirements on a forward-looking basis globally.

So how do we deal with power generation? How do we deal with movement of the electron and how do we do with energy storage, particularly when we have volatile, renewable sources of energy? So that to me is the big question which you have to try and solve. And I think people just waking up to it, if you look at forward power prices in the US at about two years, I think there’s a big wake up call there.

Andrea Hotter: Yeah. And obviously you’re going to take a lot of critical minerals to get there too. So, good news for the commodities world. And if we had to fast forward a decade, what will the landscape for critical minerals look like given current geopolitical trends? Obviously, we don’t know where we’ll be exactly with geopolitics in a decade, but if you had to guess, where would you say?

Jeremy Weir: I think we’re going to see higher price environments for a start. I think we’re going to see more diversified supply, particularly in the process inside you. You can’t change your geology so the resources are where they are. You may see development in new areas.

I really hope we’re going to see a great mining ecosystem developed in sub-Saharan Africa, which will be highly positive for those countries. And I’d really like to see that, but we’re going to see, I think, higher prices. People are going to get used to the fact that commodities aren’t going to be higher priced. We’re going to see probably a bit of inflationary results, but we shouldn’t necessarily be too scared of it because if you see the copper price at $15,000 or even higher, I don’t think that’s going to have a huge increase on component prices on a forward-looking basis. But the biggest issue is actually have we got the supply to meet the forward demand? That’s going to be the critical issue. And are there any other technologies which can displace some of the existing materials or the way we do things? That’s going to be the challenge.

Subscribe to Fast Forward, your definitive podcast for the critical minerals and battery raw materials markets. Each episode, we’re diving headfirst into the latest trends, market buzz and game-changing technologies that are shaking up this ever-changing landscape.

Andrea Hotter: Yeah, fascinating. And now, let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Lasse Sinikallas: Thank you, Andrea. And my name is Lasse Sinikallas. I’m the director of macroeconomics here at Fastmarkets. I wanted to take a look at the global economic growth and the energy transition on discussion and how oil price and the fossil hydrocarbons prices like natural gas, they used to be the inflation driver in most of the advanced economies, most of the global economies as well. So basically oil price defined the level of inflation when Russia attacked Ukraine. There was a big push in inflation and energy with the energy in a flow from Russia to Europe being stopped gradually and now being more or less close to zero.

Now that Russia is out of the game, so the hydrocarbon based energy has to come from somewhere. It has come from both the USA and from the Middle East, the traditional hydrocarbon hub of the world. Now with the latest war in Gaza, so that means that everybody was expecting the oil prices to push higher again, but that hasn’t happened. And that’s partly because of the major transition of US oil production becoming the largest in the world. And at the same time, Europe, which is one of the key areas in the world that consumes oil, which is imported, Europe is very much already moving on with the energy transition.

We’ve seen a huge amount of renewables added to the European energy market. There’s a lot of CO2 neutral power becoming online. We have some nuclear, but we have a huge amount of solar and wind energy. And those are a big game changer in the sense that the energy driven inflation, which used to be very important for those industries, which are connected to the commodity supply chain, say forest products, metals, even agriculture products. All those supply chains were very much seeing those impacts from the energy price changes.

Now, with the electrical power and with sources of that power being solar, nuclear, wind power, they are almost inflation neutral. The inflation for those comes from the price of those raw materials going to solar panels or wind turbines. It comes from labor market. It’s not that much of a geopolitically connected thing. And that to some degree immunizes those countries now moving into the sustainable or renewable or zero CO2 energy sources. And at the same time, it changes the game the industries are playing because slower producer price inflation due to energy will mean more stability, more ability to build the business on those energies.

Andrea Hotter: And now, back to the interview.

So Jeremy, it’s that time for the segment in the podcast now where we’re going to throw some audience questions at you, which I sourced recently by social media. So first question we had was, we’re seeing a lot of geopolitical tensions impacting Europe and the Middle East energy supply chain. So what strategies can mitigate these disruptions?

Jeremy Weir: Good question. I don’t know how you resolve the current geopolitical issues at the moment. We have got problems, obviously. We talked about long shipping routes, disrupted supply chains. These are due to sanctions and other issues. Until we have a resolution of certain conflicts, quite frankly, I don’t see how we’re going to address these problems in the very short term. And we’re going to have to have some fundamental changes with the current conflict dynamics and geopolitical dynamics to address on a sustainable basis.

Andrea Hotter Yeah, fair enough. The next question goes back to the idea of price purification and the move away from global pricing as geopolitics pushes countries to sort of split off into trading blocks.

How does the potential rise of bilateral trade, especially between the BRICS nations, impact Trafigura’s plans for the next couple of years?

Jeremy Weir: It doesn’t really. I mean, we source from multiple jurisdictions and we sell in multiple jurisdictions. And while we have disrupted supply routes and as we talked about, we have sanctions where we can’t trade in certain things or trade with certain companies. We just comply. But at the end of the day, the molecule, the tunnel will be sourced and supplied within them most economic parameters. Whatever is thrown at us, we have to adapt to that. We’ve got to function and then we have to continue to provide that function to society.

Andrea Hotter: And then the last question we had was around energy supply and its impact on commodities. So higher prices, energy supply, obviously they’ve been a big factor in forcing the closure of commodity smelting and processing capacity in Europe. We’re waiting to see whether Ukraine and Russia renew their transit agreement to continue to send Russian natural gas by overline pipelines to the EU after the share. Is Europe at risk of losing its processing industry?

Jeremy Weir: Look, high energy prices are a problem. We have a zinc industry and we had to try and manage that industry when we had very high energy prices. But I think coming back in particular to gas, the consensus view appears that Ukraine will not renew the agreement and that has largely been priced into the gas market. It also should be recognized it’s less than 10% of what Russia used to supply to Europe. So there’s alternative forms of energy.

And really higher energy prices in Europe compared to, for example, the US is definitely a big issue for domestic processing. And as I mentioned before, that was a problem for us within Neostar, a zinc smelting business, but we’ve been able to manage that. And I think that’s what we start to see. There’s a little bit of industry coming back at the moment. So we seem to be bodied out and hopefully that’s going to be the case. But energy prices now at current levels are something which we can manage.

Andrea Hotter: Well, Jeremy, it’s a complicated world, but thank you for taking us through it. And thank you so much for being in the hot seat today. We really appreciate your time and answers. I personally have really enjoyed our chat.

Jeremy Weir: A pleasure, Andrea. It’s been a pleasure for me as well.

Andrea Hotter: Thank you very much. And thanks also to the audience for joining us today. In order not to miss any more episodes, make sure you subscribe to Fast Forward on SpotifyApple PodcastsAmazon Music or wherever you get your podcasts. And don’t forget to leave us a review.

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