By Josephine Mason and Melanie Burton
NEW YORK/SINGAPORE, Dec 12 (Reuters) - Mercuria plans to
enter the fiercely competitive business of trading base metals
concentrates, the company said, the latest move by one of the
world's biggest oil traders to expand into niche commodities
markets and challenge bigger, diversified rivals.
Coming after its first foray into physical refined base
metals trading 18 months ago, the Swiss-headquartered, privately
owned trading house has hired a veteran trader, Jose Leon, to
help set up a non-ferrous concentrates desk, three sources
familiar with the matter told Reuters.
Leon, who previously worked for MRI Trading AG, the Swiss
non-ferrous concentrate trader set up by Marc Rich, the founder
of Glencore, will run the lead and zinc book, the sources said.
He will start in January and will be based at Mercuria's
A spokesman confirmed the company will expand into
concentrates trading, but declined to comment on the appointment
of Leon and plans to hire more traders.
Mercuria will be the first major entrant into the opaque
industry since Freepoint Commodities LLC, run by former Sempra
head David Messer, bought JPMorgan Chase & Co's physical metal
concentrates business last April in its first effort to expand
beyond energy markets.
Sources expect the company to make more appointments to
bolster the team in the new year.
Leon was responsible for zinc and lead trading at MRI and,
according to his LinkedIn profile, has 20 years' experience
trading metals concentrates. He previously worked for Louis
Dreyfus and BHL Resources, among other companies.
The timing of his departure from MRI is not known, but an
official at MRI confirmed on Wednesday he no longer works for
the firm. Singapore-based logistics firm CWT Ltd
bought MRI in 2011.
The upstart trading house's latest expansion plan comes
after a push last year into hard commodities to compete with its
bigger rival, Trafigura, which has logistics,
warehousing and trading operations in energy and metals markets.
It now deals in about 1 million tonnes of base metals a
year, including 500,000 tonnes of refined copper, 200,000 tonnes
of zinc and lead each and 100,000 tonnes of nickel, according to
a source familiar with the matter.
Mercuria has grown rapidly since its creation nine years
ago, also moving into agricultural products. Merchants are not
affected by deeper regulation that has forced many U.S. and
European banks to exit physical and futures commodity markets.
Trading of concentrates - ore that has been crushed and
milled to remove waste and is used by smelters as raw material
to make refined metal - is dominated by some of the largest,
privately owned metals houses.
They include Transamine, based in Switzerland; Louis Dreyfus
Commodities BV in the Netherlands; and Ocean
Partners and Freepoint Commodities in the United States.
Others are also muscling in. Mick Davis, ejected from
Xstrata after its takeover by Glencore earlier this
year, has set up X-2 Resources, a mining venture which received
backing from Noble Group Ltd and private equity group
TPG in September.
As agents between mines and smelters, concentrate traders
typically fund development mine projects in return for marketing
rights of the material once the mine starts producing.
A HIGH BAR
Competition for long-term contracts is also fierce, with
many of the major miners, including BHP Billiton,
negotiating directly with smelters in China and Japan.
"The barrier of entry into concentrate trading is high. You
have to have people with established relationships with the
mines and smelters," said a U.S. trader at a rival company.
Rising supplies currently favor smelters, with miners and
traders paying them higher treatment and refining charges
(TC/RCs) to treat and refine their material.
But it can be a hugely profitable business, particularly as
ore quality deteriorates or is increasingly hard to reach at
some of the world's biggest mines and new deposits are located
in politically unstable countries.
Earlier in the year, a string of mine accidents such as
those at Indonesia's huge Grasberg mine and a rockslide at Rio
Tinto's operations in Utah unleashed a short-term
scramble for concentrate and pushed charges down.