* At least 15 trade staff have left since late last year
* Low European demand, China exports hit middle distillates
* Trade firms seek revenue from LNG, agriculture, assets
By Florence Tan and Jessica Jaganathan
SINGAPORE, May 21 Grappling with weak demand,
rising costs and heightened competition in their oil business,
trading companies in Asia are cutting staff and seeking new
revenue sources from areas such as drilling for gas and
In a sign of this pressure, at least 15 traders and staff in
operations dealing with crude and products such as jet fuel,
gasoil and fuel oil at eight firms have quit or lost their jobs
since late last year and had not been replaced, trading sources
And at least three Japanese trading conglomerates, or
shoshas as they are commonly known, have trimmed their
operations in Singapore, Asia's oil hub.
Arcadia Energy's Singapore managing director Taihe Anze will
be departing after the European firm replaced its long-serving
CEO in a recent shake-up, while Noble Group, Trafigura
, Lukoil, Gunvor and Hess Corp's
trading arm Hetco are among firms that are yet to replace
traders who have departed, the sources said.
Trafigura and Hetco declined to comment. Noble, Lukoil,
Arcadia and Gunvor did not respond to requests for comment.
Traders dealing with middle distillates are the hardest hit
as a key revenue spinner - the arbitrage window to send Asian
diesel and jet fuel to Europe - has been closed for most of this
year due to the euro zone crisis dampening demand.
Moreover, China's switch to being a net diesel exporter last
year has added to the surplus in the region.
"Unfortunately, Europe is the only place in the world where
there's a shortage of diesel. But it's too far for Asia and it's
in a recession at the moment," said a Singapore-based trader
with a European firm.
Itochu Corp, once one of the most active Japanese
trading houses in the middle distillates markets, has terminated
one of its biggest term gasoil purchase contracts with Saudi
Aramco this year, trade sources said. It had announced in March
the trimming of its trade desk in Singapore.
The company also gave up fuel oil storage tanks in Singapore
which it had held for years, together with Petrosummit, the oil
trading unit of Sumitomo Corp, and Marubeni Corp's
Marubeni International Petroleum Co (MIPCO).
"Oil consumption in Japan is dropping, so trading houses
have been reducing their oil trading, and with the emphasis
drifting to upstream activities," said Koji Takayanagi, a senior
managing executive officer at Itochu.
"The volatility in trading makes it an expensive business
and the trend, which I think is the same at other trading
houses, is to move to something with more certainty."
Higher oil prices, which have tripled over the last decade,
have pushed up trade costs, while a backwardated market - where
prompt prices are higher than future months - has made storage
Traders have tried to compensate for losses on physical
barrels by betting in the paper market but recent sharp price
changes have made price calls tough.
SHRINKING MIDDLEMAN'S ROLE
The role of middlemen in the oil supply chain is also
shrinking as producers of crude and refined oil products are
preferring to sell directly to consumers.
Some examples are India's largest private refiner Reliance
Industries, which is shipping diesel directly to
Europe, and Japanese and South Korean refiners, which are
selling their fuel to Latin America.
Expansions by Chinese state-owned oil firms Sinopec Corp
and PetroChina in their global
trading networks to complement their upstream and refining
businesses, modeled after Royal Dutch Shell and BP Plc
, left little room for independents to supply the world's
second-largest oil consumer.
And these oil companies are increasingly encroaching upon
trading firms' turf.
"Over more than 10 years the two big Chinese oil firms have
really squeezed the growth spaces of the trading houses," said a
senior trader with a U.S. hedge fund, adding that they were now
supplying refined fuel to Vietnam and Indonesia while PetroChina
has become a top fuel oil trader in Asia.
The refiners are still looking for new markets to ship their
surplus supply. For example, PetroChina secured a term contract
to sell diesel to Sri Lanka in a rare move last year.
Independent traders Vitol, Trafigura and Gunvor
are responding to changing markets by snapping up power,
refining and fuel distribution assets from international oil
firms, while Singapore's Hin Leong Group is pursuing several
projects to build a refinery and oil storage terminals in
various parts of Asia.
Trading firms are also exploring other commodities such as
metals and agricultural products.
"The trading business is becoming very much a niche type of
business such that the only way you can really have any
sustainable competitive advantage is to have relationships or
assets," said a veteran trader
(Additional reporting by Luke Pachymuthu and Seng Li Peng in
SINGAPORE, Chen Aizhu in BEIJING and James Topham in TOKYO;
Editing by Muralikumar Anantharaman)