The system is wrong, not the people. The financial sector is out of control and is screwing the rest of us. We know traders will trade in anything that looks like making a profit. We know they make profits out of rising prices, and falling prices, it’s just a matter of betting correctly. And we know, if they’re big enough, or close enough to one that is, they can start stories going which affect prices and then bet accordingly. Though we might have thought that was illegal. This month the Financial Times has run a series of articles on Glencore showing how they influence commodity prices for their own profit and everyone else’s loss, and how they are expected to increase their stranglehold in key areas.
Glencore, the world’s largest commodity trader, is in the news because its initial public offering of shares to the London Stock Exchange, scheduled for late May, is expected to value the company at between £60 billion and £73 billion, putting it comfortably in the FTSE100 index on its first day of trading. It may be big but the FT reports that Glencore has paid “almost no corporate taxes on its trading business for years in spite of bumper profits.” That may be no surprise since that’s how these financial sector firms are allowed to work, but the way it trades, revealed in relation to Russian wheat and corn, is more interesting.
Last spring and summer the Russian wheat and corn harvest was threatened by drought and prices looked set to rise. Glencore, the world’s largest trader in Russian wheat, bet prices would rise and were in a position “to make proprietary trades (ie in its own name rather than on behalf of a client) going long wheat and corn.” Having placed their bet, they needed to make sure prices went up. So, according to the FT report, Yury Ognev, head of Glencore’s Russian grain unit, encouraged Moscow to ban wheat exports, saying: “From our point of view the government has all the reasons to stop all exports.” Ogny’s deputy also backed up the advice. Two days later wheat exports were banned with the result that prices rose over 15% in two days and Glencore made their loot. While elsewhere in the world, people who were already struggling to survive would have to struggle that bit harder. Glencore’s official comment on Ogney’s intervention was that he was only expressing his “personal views”! That’s how they make their money.
In its prospectus submitted to the Stock Exchange for its listing, Glencore claims to be “the world’s largest physical supplier of third-party sourced commodities in the majority of the metals and minerals markets.” Control of third party markets is vital, even though most trades are between industrial consumers and producers, as the FT explains, spot prices in the third-party market determine the prices for all transactions. So such a concentration of power in the hands of one organisation is a great concern, especially one that operates as Glencore does, as it did in Russian cereals.
So why are they going public, despite the annoyances of public disclosure and having to pay some taxes? There appear to be two reasons. Firstly, other commodity traders fear they are intent on extending their monopolistic control of markets by using its public quotation to finance takeovers, either of other traders, or more likely, to start with at least, the London-listed miner Xstrata in which it already has a 34 per cent stake. Glencore CEO Glasenberg, told the FT that a combination between Glencore and Xstrata “made sense”.
Alternatively, the motivation to go public might be simply to turn its partners, the 485 employees who own shares, into multi-millionaires. Who could blame them for that? We are all, with very few exceptions, corruptible. The regulatory system should be set up to take account of that and stop firms like Glencore screwing the world.