The talk of the town is the demise of trader Carbofer, from trading billions of dollars of steel and coal in 2008 to a shutdown of trading after failing to secure much-needed cash injection.
Dealing in steel and coal has become a risky business in the last few months at the center of a highly specialized trading ecosystem that links Italian industry with Russian raw materials and moves coal around the world to feed steel mills.
Markets are too volatile, less profitable and much riskier and the cost of credit is escalating, especially for the niche players around the Lugano lakeside, much less heavyweight than the big commodities traders across the Swiss cantons in Geneva and Zug.
“We have to cut costs like everybody else because this is a difficult trading environment, credit is a challenge and costs have been rising,” said Alberto Ravano, President of Bulk Trading SA, active in the coal market.
A trader excuses himself for being late for a meeting: his company’s board meeting, usually a two or three hour affair, went on until evening. The company has decided to trim down its structure, he says. Jobs will go in Lugano and elsewhere.
The shadow of Carbofer falls long over the red roofs of the city which likes to say it adds Italian allure to Swiss efficiency.
Carbofer has fired many of its employees and agreed to move its steel trading team to Starglobe, also in Lugano. The coal traders have left to set up a company with a Monte Carlo-based conglomerate, effectively leaving it deprived of any trader.
Its creditors are now moving to recover hefty debts threatening the once-major spot market player with liquidation.
“Swiss banks are more supportive than European banks but even so, compared with a few years ago they are more restrictive,” a trader said. “The biggest risk is that we could see some of the smaller-medium traders go bust if the banks withdraw their support.”
Banks started to cut their exposure to commodity trading a few months ago and have yet to reopen the money tap.
“As usual banks open the umbrella when it has just stopped raining,” said Gianfranco Imperato, head of coal and steel trading house Trasteel.
That is not in keeping with Lugano’s business friendly reputation.
“We have really flexible rules and laws here - it takes just a couple of weeks to set up a company here,” said Marco Passalia of the chamber of commerce of the Italian-speaking Ticino Canton and secretary of the Lugano Commodity Trading Association.
“Russians started coming here in the 1970s and this relationship developed and gave the opportunity for other entrepreneurs to come here,” he added. “It’s a hub of know-how in the sector now.”
BRUNO BOLFO AND THE RUSSIANSLugano was not always known for its commodities trading.
“Lugano is a peculiar case,” said Imperato. “It’s a sort of weird fauna - when I arrived in the 90s people in Lugano thought we were strange beasts. There were only banks or trust companies before. Now everyone knows that there is this trading world gravitating here - we have shaken Lugano a bit.”
A favorable tax regime and access to discreet banks with good expertise on commodity trade financing lured the first traders to the lakeside. The turning point came with the arrival of Bruno Bolfo, the charismatic Genoese entrepreneur who founded Duferco in 1979.
“Up there is Olympus!” said a trader pointing at the top floor of Duferco’s austere concrete and glass building looming over the city’s elegant boutiques.
From his eyrie the 71-year old Duferco president and chairman of the board controls one of world’s largest private steel trading houses with more than 8,000 employees worldwide.
Bolfo, with a reputation for charm and business intuition, was the New York-based export director of Italian state-owned steelmaker Italsider, before setting up on his own.
He was one of the first to capitalize on the switch of steel production to emerging countries in the 1970s and to focus activity in South America before shifting attention to Eastern Europe in the late 80s, when he moved to Lugano.
The company grew dramatically thanks to takeovers of industrial assets, strategic joint ventures and marketing agreements with some of the major Russian and Ukrainian steel mills, including Russia’s largest steelmaker Evraz, Novolipetsk Steel (NLMK) and Ukrainian Industrial Union of Donbass (ISD).
Its growth fed the Lugano network and drew a skilled and specialized group of people to Canton Ticino.
“I think Duferco opened the way when it came here more than 20 years ago,” said Bolfo’s nephew Massimo Bolfo, who after serving as a CEO at Duferco started his own company, Trasteel, in Lugano, in 2009.
Many former Duferco employees moved on to found, manage or work for new, competing steel and steel raw materials trading companies in Lugano, including Carbofer, Trasteel and Starglobe, most only a short walk from one another.
“While for steel the key was Duferco, which was a sort of mother whose children have spread into the Lugano territory, the coal situation is a bit different,” said former Duferco trader Imperato.
Lugano lured trading clans from Genoa, an Italian trading hub since the Crusades, who are powerful in the coal trade, he said.