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Anna Healy Fenton

Eric Ng

Richard Elman and Gary Mize's transatlantic alliance drives a Hong Kong Noble house

TO THE CASUAL observer it first appears that Noble Group, the plucky Hong Kong-based but Singapore-listed shipping and commodities firm, is in safe American hands. Both chief executive Richard Elman, who founded the company, and chief operating officer Gary Mize speak with American accents.

In truth, one of them is a Brit and part of the fun is figuring out which one it is.

At first, Mr Elman seems to be the likely Yankee, and perhaps one of the Californian New Age variety. Fidgeting incessantly with a bracelet, he explains: 'They're chi beads. They keep good energy and don't ask me to take them off.'

Seeming to clinch the identity dilemma is artwork adorning his office in Noble's Gloucester Road headquarters - large modern paintings in bold colours including one of an American icon, Superman, flying over Hong Kong.

'I don't buy paintings because they are valuable,' he says. '[Superman] is of inconsequential value but of great value to me.'

Meanwhile Mr Mize, speaking in a separate interview, occasionally fires back at his interviewer with clipped impatience. Asked of Noble's planned expansion into yet another commodity business, he takes issue with the 'c-word'.

'The word 'commodity' is over-used,' he says. 'Is it really a 'commodity' or a 'product' that we market?

'We don't believe what we are dealing with are commodities, we believe we are marketing products to customers,' Mr Mize continues before grudgingly declaring a truce. 'To me 'commodity' is a bit of a misnomer but I'll give you that this time.' Surely the no-nonsense Mr Mize is the Brit?

Wrong. Mr Mize, it transpires, is the American. His education and subsequent 29-year career with agricultural commodity giant Cargill, which he joined in 1975 as a soybean trader, and later ConAgra Foods took him to places such as Michigan State University, Florida and Omaha, Nebraska, with a few exotic reprieves (Geneva and S?o Paulo) along the way.

He traded in corporate America for Noble and a Hong Kong posting in September 2003.

Mr Elman, meanwhile, offers an explanation for his transatlantic twang. Three decades of expatriate life was a contributing factor but the main culprits appear to be a short stint in New York and a previous marriage to an American.

As if to demonstrate the power of his chi beads, Mr Elman is given to striding energetically around his offices and exudes a sense of focus and purpose.

So it is oddly surprising that Mr Elman can't seem to recall when he started his first company and Noble's predecessor, Metalore Asia.

'It was the late '60s or maybe mid '70s,' he says vaguely, then rapidly changes direction. 'History I forget, I'm always looking forward. I sold that company, so it's pretty irrelevant.'

Or maybe it's not irrelevant, because he suddenly decides to make a phone call to find out the answer: January 1972. A question about who bought Metalore Asia also sends him scurrying, this time to the bookcase to check the spelling of trading firm Philbro Brothers.

'It's not important to bog your mind down with a lot of things - what's important is knowing where to find the information,' he says triumphantly after finding it. '[Philbro Brothers] were the leaders in non-ferrous metals and opened up the China business.'

He went on to establish Noble in Hong Kong in 1986. Like many business ideas that later go gangbusters, it appears brilliantly obvious in hindsight. It was, as Napoleon once predicted, only a matter of time before China woke up. And when it did, it would need commodities - from coal to soybeans - and shipping companies to transport them.

There were a few hurdles along the way, one of which was a spot of political foment in and around Tiananmen Square in the spring of 1989. 'We had a lot of business in China [at the time] and it looked like the customers were not going to pay for the goods we had shipped there,' Mr Elman recalls. The crisis passed when the firm, then still in its infancy, hit upon an ingenious solution: 'We decided it was the banks' problem.'

On another occasion, Mr Elman received a call from London informing him that US$200,000 was needed right away to pay bills. 'We didn't have it then, but we did by the end of the day,' he says. 'It was fun because we managed it.'

Noble now employs some 1,200 landlubbers and another 3,000-4,000 on its 120 ships, with a further 125 vessels on technical management or charter around the world. It trades in a wide range of agricultural products, fuels, metals, minerals and ores across 31 countries.

'Running a business is like an orchestra,' Mr Elman says, pointing to another painting on his wall - a portrait of Herbert Von Karajan called The Conductor. 'Get them all to play, and in tune, and it's a pretty sound. Get only some of them in tune and I leave it to your imagination.'

China's emergence on the global economic stage has been, as Napoleon also warned, earth-shaking. The country's demand is now a determining factor for the world's natural resource markets.

Mr Elman notes that Noble's businesses have grown to include 'basically anything that comes out of the ground', from coffee to iron ore. The company expects it will double or even treble turnover within the next five to 10 years, and will branch into new businesses including oil and cotton. Noble's business has also evolved beyond sourcing and shipping for its clients. To secure access to various commodities, it has invested in coal projects in Australia and port operations in Brazil and Argentina.

The company has even discovered derivative commodity markets that, in one case anyway, involve burying things in the ground rather than extracting them.

Carbon credits, for example, are an internationally recognised form of 'pollution rights' that countries committed to reducing carbon emissions under the Kyoto Treaty can buy and sell. A country under its limit accrues credits that can be sold to a country over its limit.

Credits can also be racked up in more mundane ways, such as burying cattle manure to reduce methane emissions. Noble is working with farmers, from whom it sources agricultural products, to create such credits for sale to power plants and its other industrial clients.

'It's not [a physical commodity] that moves around the world and only price drives its value,' Mr Mize explains. 'There is a lot of intellectual capital that has to be invested.'

That burying cattle manure is today a potentially very big business illustrates just how Noble's industry has changed over recent decades. When Mr Elman first arrived in Asia in the late 1960s, his proximity to regional markets gave him an advantage over traders in Europe and North America, who had to wait for information to filter back to them.

It is no longer as easy. 'We live in a world where information moves very fast and there isn't a lot of recovery time,' Mr Mize explains, referring to pre-prepared commodity price charts on hand to illustrate his points. 'The value of information was much different in 1975 ... you only had proprietary internal communication and telex, not  e-mail and instant messaging.

'This shorting of cycle-time pays a much different dividend. Be it port queue conditions, satellite weather information or crop conditions, you've got to figure out another way to create an edge today.'

Commodity markets are also infinitely more liquid and volatile than they were 20 years ago. 'We've got over a trillion [US] dollars under investment by [global commodity] funds,' Mr Mize says. 'Many are attracted by the increase in value in commodities, especially exchange-traded products. I don't see it changing at all. In fact, I see it increasing.

'All of our markets need something to lead them - they need one rabbit to run out ahead of the pack. Last year freight and China's import demand were the main drivers of value. I would suggest that this year anyone in our business has to think of different things. He has to look not so much at freight but other factors: high energy costs, rising interest rates and an appreciating US dollar.'

As an example of the lateral thinking his industry now requires, Mr Mize cites aluminium and other commodities dependant on energy-intensive production processes. Prices for many of these fell in the second quarter. But with crude oil stubbornly hovering around US$60 a barrel, he reckons that will change.

'If you are exporting aluminium you are exporting energy,' Mr Mize says, adding that the key is to recognise 'the value of the energy that's implicit in [its production]'.

Biography

A native of Brighton, England, Richard Elman started his first company, Metalore Asia, in Hong Kong in 1972.

He sold  Metalore to commodity trading firm Philbro Brothers and stayed on to become regional director of its Asia operations before starting Noble Group in 1986.

Gary Mize has been Noble Group's chief operating officer since September 2003. He joined from ConAgra Foods, where he  had been president of its Omaha, Nebraska-based grain processing unit. Prior to that, Mr Mize spent 24 years with Cargill in executive management positions in Florida,  Geneva and Sao Paulo in Brazil.



Putting two faces on the commodities trade