Commodity mogul lauds 'restraint' amid cash exodus

Commodities billionaire Richard Elman highlighted the benefit of financial restraint at a time when "funding is pulling out of the sector" as the Noble Group he founded unveil a rise in earnings despite a slump in agriculture.

Mr Elman, worth $1.8bn according to Forbes, blamed the "uncertainty" caused by elections and government changes in the likes of China and the US, as well as "echoes of the financial crisis" for causing "huge volumes of investment money to drain out of the commodity space" last year.

And still "funding is pulling out of the sector", he said, adding that "significant asset write-downs are being taken" by commodities groups.

The comments come against a background of concerns over commodities losing their appeal to investors, many of which are seen switching cash into equities.

Calprs, the pension fund for California state workers, this month reported a cut to $1.58bn in commodities investments as of the close of 2012, down from $3.45bn as of the end of September.

In another high profile exit this month, Barclays ditched serving speculators in agricultural commodities, a decision market rumour linked to talk of heavy liquidations by two hedge funds.


These dynamics justified a decision by Noble Group, the commodities trading giant he founded and chairs, not to "try to get long of commodities aiming to make super-profit from mining and farming, with their enticing producers' margins".

Noble's "restraint" meant it had entered 2013 with its lowest levels of committed capital expenditure, of $500m over the next two years, compared with the $824m spent in 2012.

"The balance sheet is as strong as it has ever been. We have never had access to more funding, nor has that funding been cheaper," Mr Elman said.

Rival commodities trader Olam International, which like Noble Group is based in Singapore, has been attacked by short selling fund Muddy Waters over its debt levels.

'Strongly negative margins'

The comments came as Noble unveiled a rise of 9.2%, to $471.3m, in annual earnings, on revenues up 16.5% at $94.0bn, despite a sharp decline in its performance in agriculture.

The group said that its grains and oilseeds operations "experienced a very difficult year", thanks to the South American drought which cut crushing volumes at its Timbues plant in Argentina, and also hurt profits by lifting world crop prices.

In China, the group's margins "continued to be negative, often strongly so", Noble said, highlighting a setback also identified by Singapore-based peer Wilmar International.

With the group's Brazil sugar business performing in an "operationally challenging environment" too, with the cane crush hampered for much of last year by excessive rains, the Agriculture division reported a slump of 62% in operating profits.

Better year ahead?

However Noble, which reported rise of more than 30% in annual profits from energy and metals, forecast improved conditions for its agriculture division in 2013.

The grains and oilseed operations should "benefit from a strong crop outlook" in the group's "key" areas for sourcing crops, in South America, while the sugar operations would benefit from higher capacity utilisation, thanks to a forecast 27% rise to 13.6m tonnes in cane crushing volumes.

"Recent changes in the [Brazilian] regulatory environment, which include reduced taxes and increase in ethanol blend, are helpful to the domestic ethanol market," the group said.

In soft commodities, Noble forecast "further improvement through 2013 with a new cocoa team strengthening the division".

The results were released after the close of Singapore markets, where Noble shares closed up 0.9% at Sing$1.185

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