By Archie Hunter

Oliver Wyman Sees $95 Billion Profit Year As ‘Baseline’ For Commodities Trade / Bloomberg

(Bloomberg) -- Commodity trading profits of $95 billion last year provide a “baseline for future growth,” even as markets normalize following a period of extreme volatility, according to Oliver Wyman LLC.

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While 2024 was the sector’s third-most profitable year on record, gross margins were 20% to 25% lower than 2023, the consultancy said in its annual report on the industry. Trading houses are coming off by far the most profitable period in their histories after Russia’s invasion of Ukraine and subsequent sanctions turbocharged volatility and created supply shortfalls of energy, agricultural goods and metals.

Those bumper earnings have been invested in assets like oil refineries and gas plants, while the trading companies have also paid out billions to the executives that own their shares. The sector will have further opportunities, Oliver Wyman said.

“Globalization, the energy transition, and geopolitical shifts will continue to create the optionality, volatility and risks that drive margins for traders,” the consultants said.

However, that period — where companies beefed up their risk, analytics and finance teams as well as paying more to hire additional traders — has left the industry with much higher costs. The cost per trader employed has risen more than 25% since 2019, while overall operating expenses at trading houses have climbed by 45%, according to the Oliver Wyman report.

At the same time, resource producers like national oil companies, Wall Street trading firms and hedge funds have also been pushing into commodities.

“Competition is growing,” the consultants said. “Outsized market volatility is not currently supercharging margins – nor concealing poor discipline.”

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