For Trafigura, the surge in Indian oil demand is just the start of a story that promises to run for long, and the commodities trader is busy putting together a strategy to ensure that it is not left behind in the battle for market share in Asia's next big center for growth, after China.
The company has just put together a team to be based in India to handle oil trading, expanding its ground presence beyond metals in the country.
"We are also ramping up to serve what we see as an expanding market in India, both with imports of crude and trading of refined products," Nicolas Marsac, Trafigura's CFO for Asia Pacific, told S&P Global Platts in an interview Tuesday. India's oil products demand grew 8.5% year on year in 2015 to 177 million mt, or 3.81 million b/d, as gasoline, LPG and naphtha saw double-digit growth in consumption.
In the first half of 2016, India's overall oil products demand surged 11.1% year on year to 97.62 million mt, or 4.2 million b/d. The IEA expects total Indian oil demand to average 4.3 million b/d in 2016.
The government's clear policies for the oil sector, strong and sustained GDP growth, and a huge push towards making India a manufacturing hub are not only playing crucial roles in helping accelerate oil consumption move into top gear, but are also whetting the appetite of leading multinationals to set up shop in the South Asian nation.
In addition to Trafigura's plan to set up a trading team, there have been reports in the media about the Swiss trader's interest in acquiring a stake in Essar Oil Ltd., India's second-largest private refiner. But this has not been confirmed and company officials are tight-lipped about it.
THE CHINA STORY
While Trafigura pushes its expansion into oil in India, it is also aggressively moving ahead with its plans for China, where the liberalization of the oil sector from government control has been one of the biggest Asian oil growth stories since last year.
"China's oil liberalization is a very good opportunity and we are well-equipped for that. We are also expanding our infrastructure and presence in China. The independent refiners provide us a very good opportunity to boost our business volumes," Marsac said.
Trafigura has been one of the most active companies in trading with China's independent refiners. Besides supplying foreign crude, it has also been the offtaker of a number of gasoline cargoes exported by these refiners. Sources said recently that Trafigura had struck a deal with two refineries -- Luqing Petrochemical and Huifeng Petrochemical, also known as Wonfull -- to supply crude to them and buy their oil products for export, but on preferential credit terms.
It has been also making an effort to sell Iranian crude to independent refiners, according to sources.
In addition to oil, the company is keen to expand its presence in LNG and bitumen in Asia, sources have said.
Trafigura's gross profit for the six-month period ending March 31 was $1.17 billion, down 23% from $1.52 billion a year earlier, giving a gross margin of 2.7%, CEO Jeremy Weir said in a statement while releasing the financial results in June.
Its average volume of oil traded during H1 amounted to 4 million b/d, an increase of 46% from 2.7 million b/d in H1 2015 -- leading to doubling in size of its oil trading book since H1 2012.
Weir said in June that with US production falling sharply and demand continuing to grow strongly, for example for gasoline in the US and China, he believed that the much-anticipated rebalancing of supply and demand seemed within reach.
ASIA STRATEGY
Marsac added that Asia would remain a key focus area for the company, not just for oil, but also for other commodities in which Trafigura has a solid presence in the region.
"We have significantly expanded trading volumes in Asia over the past year and we are building out our capabilities in the region, with a particular focus on our hub office in Singapore, on China and on India," he said, referring to the company's overall strategy for Asia.
The company late last year appointed Tan Chin Hwee, a 20-year veteran in asset management and founding partner of the $162 billion hedge fund Apollo Global Management, to lead its Asian operations.
As more and more trading houses increasingly offer not only physical commodities, but also financial and risk solutions, Trafigura is trying to ensure that it can provide business models to its customers that are transparent.
"Ours is a comprehensive business model -- focusing on customers and offering trade services, backed by logistics, financial support and risk management solutions. The model is well established in Asia and we are looking to expand it further," Marsac said.
