Abu Dhabi is to make a bold foray into commodities with the establishment of a government-owned trading house aimed at securing food supplies for the import-dependent nation and capturing profit margins in metals and agriculture trading.
People familiar with the plans say the company, which is called Abu Dhabi Sources or ADS, is likely to be started with a capital base of several hundred millions of dollars.
ADS will be going up against well established trading houses, including Glencore, the world’s largest commodities trader, Minneapolis-based Cargill and Louis Dreyfus of France.
Bankers and traders in London and Geneva, Europe’s trading hubs, say headhunters have approached metals and agriculture traders in the past three months seeking senior staff to build up ADS. It is not clear if ADS will trade in oil.
Abu Dhabi, home of 95 per cent of the hydrocarbon reserves of the United Arab Emirates, has embarked on ambitious plans to transform itself into a global city, with infrastructure projects that could cost more than $300bn and require huge imports of raw materials.
Food security has risen to the top of the agenda in the Middle East and North Africa – the world’s biggest importer of cereals – following the food crisis of 2007-2008.
Policymakers are worried about surging prices, but more importantly about exporting countries’ trade restrictions – such as Russia’s halt on wheat shipments – which make importers vulnerable to an interruption in supplies.
Commodities prices have rocketed in the past six years on the back of strong demand from China and other emerging markets.
Copper prices hit record highs last week, becoming the first industrial commodity to break above levels set in 2008.
Abu Dhabi has been working on a food security strategy and is building silos in Fujairah, a smaller member of the UAE.
The move is designed to secure the flow of imports even in the event of a disruption in the Strait of Hormuz, the Gulf’s key waterway, which could be affected by any military confrontation with Iran.
“If you really want food security, either you buy a piece of farmland overseas or you build your own trading house,” a London-based commodities banker said.
Abu Dhabi is not the first country to build a domestic trading house, although its plans appear more ambitious than other, more limited, state-owned trading enterprises, such as Badan Urusan Logistik, or Bulog, of Indonesia.
By Javier Blas and Jack Farchy in London and Andrew England and Roula Khalaf in Abu Dhabi