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Gunvor's 2017 profit down 49% after US investments

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LNG Industry,

Reuters are reporting that Gunvor posted its lowest net profit last year since at least 2011 due to major investments to set-up a US trading presence and a prolonged planned turnaround at one of its refineries.

Net profit fell by 49% to US$162 million from US$315 million in 2016 while the rise in oil prices raised revenue to US$63 billion from US$47 billion. The level was its lowest since at least 2011.

Traded volumes rose 22% to 184 million t from 153 million.

In a statement, Gunvor said a difficult trading environment and the end of several long-term contracts and storage commitments also contributed to the lower profit.

Profit at some of Gunvor’s main competitors was also hit by the low volatility which characterized global oil prices for much of 2017 and the year-end market shift from a contango structure to backwardation.

In addition to the market structure change, the rising costs of compliance and credit has also weighed generally on trading houses, CFO Jacques Erni said.

Vitol’s net profit dropped about 25% and Trafigura’s fell 9% year-on-year to the lowest since 2010.

Gunvor’s choice to build up a trading firm in the US rather than buy one came at a high cost as there was no immediate positive addition to the balance sheet, Erni said.

“It was a pure cost, it’s gone from a one-man show to an 80 person operation. It’s been much slower than we thought but it’s there now and it’s performing very well now in 2018,” Erni said.

“Getting registered, getting licenses in all the states because we are trading domestically ... it was complicated, expensive and time-consuming. We also hired traders and trading teams.”

He added that growth from its new US operations would only be reflected in 2018 results as trading there mainly ramped up at the end of 2017. Gunvor now has two US offices in Houston and Stamford, Connecticut as well as a representative office in Calgary, Canada.

As for the turnaround that takes place every six years at its 110 000 bpd Ingolstadt refinery, Erni said the timing was unfortunate as Gunvor missed out on strong margins in the first quarter of 2017 when the plant was shut.

He added the turnaround was extended to about 7 – 8 weeks from 4 – 5 weeks when the company saw opportunities to make additional improvements.

Erni said the most notable volume increase was in liquefied natural gas, which grew to 7 million t from 4 million t in 2016.

For 2018, expanding trade in the US domestic market and in LNG were the company’s priorities. The firm was also looking to do more structured pre-export finance deals.

In terms of physical investments, Gunvor was still deciding whether to invest in adding a coking unit to its 88 000 barrel per day Rotterdam refinery to convert output of high-sulphur fuel oil into higher quality products like diesel.

Shipping is the main outlet for fuel oil and a global rule change in 2020 is expected to create a glut of the product and hurt the profitability of refineries unless they alter their yield make-up.

The rules from the International Maritime Organization (IMO) aim to cut sulphur emissions produced by ships, creating a challenge for shipping companies and oil refiners.

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