Glencore, Gunvor and Trafigura: Are commodity prepayments a boon or a curse?

By Christophe Le Bec
Posted on Tuesday, 23 March 2021 13:41, updated on Thursday, 25 March 2021 12:23

Ian Taylor, CEO of Vitol Group; Torbjorn Tornqvist, CEO of Gunvor; Ivan Glasenberg, boss of Glencore, and Jeremy Weir, CEO of Trafigura. © Jason Alden / Bloomberg / Getty; Horacio VillalobosCorbis / Getty; Simon Dawson / Bloomberg / Getty; Trafigura. Editing: JA

Used by Glencore, Gunvor and Trafigura, commodity prepayments have brought the Republic of the Congo and Chad to the brink of collapse, according to the International Monetary Fund (IMF). But, according to professionals in the sector, this “centuries-old” practice has a bright future ahead of it.

The Swiss trader Trafigura, through its financial director Christophe Salmon, claims that “prepaying for raw materials is a centuries-old practice”, evoking its use by Venetian merchants during the 17th century. However, the deals that the Swiss group and three other trading giants – its compatriots Glencore, Gunvor and Vitol – have concluded in recent years on the continent are considered controversial.

The principle of these deals is simple: a loan is granted by a trader, which is repaid – for both principal and interest – “in kind” by shipments of oil or minerals from the future production of the contractor, usually a state or the national extractive company.