TORONTO (miningweekly.com) – Glencore lost money on agricultural commodities in 2011 by trading volatile cotton markets and saw the profitability of trading metals and oil remaining weak or declining, the commodities giant said on Tuesday.

Glencore, which rivals Vitol for the position of the world's largest trader by revenues, announced on Tuesday a takeover of miner Xstrata, while its results revealed that the profitability of its trading operations had sharply declined in 2011.

Glencore's trading update painted not only a bleak picture of commodities trading for last year but also gave no indication of a potential improvement this year. Vitol and Gunvor, privately owned, energy-focused trading giants operating from Geneva and London are due to release some indications of their financial performance in the next few weeks.

Glencore's results showed trading operations in energy, metals and agriculture brought in an unchanged share of total revenues of around 92% in 2011 but the share of trading in core earnings (adjusted earnings before interest and tax) fell to around 36% in 2011 from 47% in 2010.

Despite having significant coal, metals and oil assets, Glencore revenues are dominated by trading activities as the company had total revenues of $186-billion in 2011, of which trading brought in around $172-billion, including $115-billion in energy trading, $43-billion in metals and minerals trading and $13.7-billion in agriculture trading.

But total core earnings in trading fell to $1.9-billion from $2.3-billion in 2010 while core earnings from industrial activities rose, resulting in the overall core earnings rise for the firm of only 2% to $5.4-billion.

Agriculture trading came as the biggest disappointment with core earnings falling to minus $8-million from $659-million in 2010, when the adjusted profitability margin (Ebitda margin) was at a healthy 8%.

"Overall agricultural products marketing results were significantly impacted by the unprecedented cotton market environment. The extreme volatility produced an outcome of ineffective hedging and high levels of physical contractual nonperformance by suppliers and customers," Glencore said.

Cotton was a key reason behind quarterly losses at rival Noble Group in the aftermath of a roaring rally that quadrupled cotton prices in six months only to see them falling by more than half.

Glencore's metals and minerals trading fared better but still saw adjusted core earnings falling to $1.24-billion, down 11% from $1.4-billion in 2010 and with an adjusted Ebitda margin declining to 3% from 4%.

Energy products trading was the only division which brought in higher core earnings of $697-million, up 55% from $450-million in 2010, but the margin remained at just 1%.

"This improvement was driven, in particular, by stronger oil market fundamentals during H1 2011. H2 2011 performance was impacted by lower wet freight rates (given our long, but continuously reducing exposure to time charters) and a more challenging oil market environment which provided fewer opportunities," Glencore said.

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