THE OTHER momentous change in the international order that has rocked the commodities world has been the rise of the People’s Republic of China.
China’s raw and relentless hunger for commodities to feed its specular growth from around the mid-2000s unleashed what is known in the industry as a supercycle—“decades long, above trend movements in a wide range of base material prices.” In other words, China was consuming so much so fast that supply barely kept up with demand, sending prices—and profits—to the sky, with substantial and grave implications for both the commodity trading business and global geopolitics. Even now, to this day, China’s demand is jaw-dropping. A recent February 2022 report by the bank JP Morgan—which came out before Russia’s invasion of Ukraine—is blunt on the matter:
While tradable commodity stocks are critically low, it is important to acknowledge the abundance of available inventories in leading commodity consumer and importer China, to draw upon as required, which can influence import demand. China currently holds an estimated 84% of global copper, 70% of corn, 51% of wheat, 40% of soybeans, 26% of crude oil, and 22% of aluminum inventories, according to our sources.
For commodity traders, this surge in prices made them filthy stinking rich. Glencore, for example, correctly anticipated growing energy demand and acquired numerous coal mines. By the end of the 1990s, the company was “the world’s largest shipper of thermal coal, trading 48.5 million tonnes in 2000 – one in every six traded on the seaborne market.” The bet paid off immediately; by the middle of 2001, prices had risen 35 percent. The value of the coal assets acquired, put in a separate company called Xstrata, grew from being worth $450 million in 2001 to a high of $84.2 billion in 2008. Glencore’s income went from $1 billion in 2003 to $6.1 billion in 2007.
Glencore wasn’t alone. Andy Hall from Phibro placed an enormous (and correct) bet on the future of oil demand. Metal traders Michael Farmer and David Lilley, creating a new trading shop called Red Kite, made a fortune on rising copper prices. The list goes on for entire pages; dozens of billionaires were created from China’s sheer demand, and many still are even as these words are being written.
THOUGH THE World for Sale is masterful in its story-telling, there are a few bits worth grumbling over.
In writing the book, Blas and Farchy seem to center their narrative on Lugwig Jesselson’s corporate dynasty: from Phillip Brothers to Marc Rich to Glencore. That is not to say that other traders aren’t mentioned; the book is replete with accounts of many commodity traders’ activities, including (and especially) John H. MacMillan’s Cargill. However, these more often than not play second fiddle to the Jesselson dynasty’s first fiddle, at least in Blas and Farchy’s account. This can be forgiven though for two reasons. First, the continuity provided by the Jesselson line makes for better and more straightforward storytelling to the benefit of both the authors and the reader—heaven forbid a play have far too many protagonists. Second, while there are books that regale on specific business segments or individuals involved in the commodity trading business—Dan Morgan’s magisterial account of the grain traders in Merchants of Grain, for example, or Daniel Ammann’s authoritative biography of Marc Rich, The King of Oil—seemingly none up until now have tackled the industry as a whole. The World for Sale, despite its aforementioned inclination, accomplishes this rather well.
That said, in some parts of the book the authors are just a tad overly charitable to the commodity traders. Though much of the tome is written in a professional journalist’s manner—neutral, focused on the facts, stating what was said by whom without taking sides—there are one or two spots where eyebrow-raising is warranted. For instance, consider the “young Soviet citizens” who took advantage of Gorbachev’s economic reforms. Blas and Farchy characterize these individuals as “young entrepreneurs” who “cater[ed] to needs unmet by the organs of the Soviet government” via “exploiting[ing] the inefficiencies of the Soviet system, buying surplus materials on the cheap or offering services to bureaucrats who needed to find a way to spend their budgets.” This sounds rather kind, with the youth descriptor evocative of American Silicon Valley tech startup types: just a few college-aged lads who notice an inefficiency in the market and build a successful, honest (enough) business by addressing it. Alternatively, were these “young entrepreneurs” actually glorified thieves? As Vladislav M. Zubok notes in his recent book, Collapse: The Fall of the Soviet Union, they essentially sold state assets (including commodities) to themselves at fixed, artificially low prices and then passed these off to foreign parties, ultimately stashing away their profits—which should have been reinvested at home to help Gorbachev’s well-intentioned (if flawed) reforms, the Soviet economy, and their fellow Soviet citizens—in Swiss banks, London properties, and so on. Depending on how one considers the matter, the commodity traders were either brave enablers of early Russian capitalism or collaborators in a large-scale geopolitical heist.
The above critiques though are mere nitpicking compared to the authors’ gravely erroneous decision to condense the growing influence of Chinese companies in the commodities trade into little more than a page at the book’s conclusion.
Blas and Farchy correctly point out that China has noticed the commodity trading industry’s enormous potential to secure profits. This, combined with the country’s enormous demand, has driven Beijing to build its own commodity trading capacity. This important matter, however, is reduced to a handful of examples in just about two paragraphs—one of which is about a single trading house, Zhuhai Zhenrong, which has made itself into the largest trader of Iranian crude oil. Other traders in oil, such as Unipec and ChinaOil, are mentioned once with no further details provided.
Similar for agriculture, where China’s state agricultural trading agency, the China Oil & Foodstuffs Corporation (COFCO), is mentioned in passing. All that Blas and Farchy have to say about it is that it “has spent $4 billion since 2014 to establish an international food trading arm.”
This line, while providing a rather excitable figure, vastly understates COFCO’s reach, influence, and significance. With around 18.5 percent of the world’s population but only 10 percent of global arable land, China must import massive amounts of food to feed its people. COFCO exists to address this dilemma, and it is essentially China’s food supply chain. It is a massive enterprise, with multiple listed subsidiaries specializing in everything from tea to e-commerce. Its own website boasts that its “annual sugar imports account for about 50% of China’s total imports.” It has a cargo fleet with over 200 ships, which is more than even the East India Trading Company had at sea at any given time. A single contract farming operation in South Africa it runs is just a tad smaller than the entire city of Detroit. The examples go on. And COFCO only keeps on growing; by late last year, its “trade group clinched agri-products purchase deals worth more than $10 billion, representing nearly 100% increase from last year.” And all this is without diving into its other interests; its ownership of foreign companies; its subsidiaries that are legally based in the British Virgin Island, the Caymans, and Bermuda, thereby enabling COFCO and China to disguise ultimate ownership of various assets; and so on.
This is all important information about just one facet of China’s direct participation in the commodities trade that probably deserved more than a few paragraphs in the book’s conclusion.
THE WORLD for Sale indirectly raises a number of uncomfortable but important questions that policymakers, subject matter experts, and the broader public should consider carefully. Foremost among them is this: in an age of multipolar geoeconomic competition, where the strength of great powers is directly tied to maintaining ongoing access to key materials, should it be private companies or state-controlled entities that are in charge of the supply of said materials?
Most modern multinational corporations, including commodity traders, strive to avoid any ideological or political entanglements—profitability is a better lodestar. There is no equivalent to the British banking firm Baring Brothers—at one point described by Cardinal Richelieu as “one of the six great powers of Europe”—a firm both at once independent yet fiercely loyal to its mother country’s national interest. The closest contemporaries to such instruments of national foreign policy are the Japanese sogo sashi firms and Chinese state-owned enterprises, the latter of which aren’t independent by definition. Corporate entities not bound to any one flag may make sense in a world of free trade with international security guaranteed by a military hegemon. However, as America’s power wanes relative to China and other rising state actors, and it is becoming ever clearer that—in myriad cases—supply chain security is worth more than straightforward profitability; a great rethinking of this topic is warranted.
Signs of a rethink appear to be already underway. U.S. president Joe Biden, for example, has signed an executive order on America’s supply chains, specifying how a variety of possible disruptions “can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services.” Notably, the order calls for “a report identifying risks in the supply chain for critical minerals and other identified strategic materials.”