Anthony Lipmann in conversation with Derek Raphael of Derek Raphael & Co.
For this inaugural ‘Tea with the MMTA’ interview, I am in a state of some anxiety in case my guest, Derek Raphael, might not be a tea drinker. Fortunately, I am not to be disappointed. To my offer of Chinese Green, Jasmine or Ginger & Apple, it is “Builders’ tea, no sugar”.
The location for our chat is our office in Hampton Court to which Derek has driven from his home in St John’s Wood on a slightly drizzly morning before this 77 year-old heads out for the golf course at nearby Coombe Hill.
As one of the stand-out personalities of our trade, Derek has seen more of the ups and downs of metal trading than most, and hence my choice for first interviewee in what I hope will be a series focusing on the people (rather than the technicalities) that lie behind the market. As a keen sportsman – cricketer, golfer, marathon runner (the last one at 65) – I am conscious that I am competing for his time against possibly more exciting activities, so I had better make this good.
Derek, you could say, remains one of the most successful living metal people of the post-war generation. While today’s minor metal people might associate Derek Raphael & Co Ltd., with cobalt or molybdenum (both metals in danger of growing out of their minor metal status), his background in metals started mainly with ores, minerals, ferro-alloys, coal and fertilizers. As we stir our teas to the left, I venture to ask Derek first about his family background. After all, how does one become a metal merchant when it is not exactly on most university curricula?
Like many of those who peopled the metal trade of the 20th Century, a Jewish background went with the territory. The Raphael origins go back to Lithuania and schmutter. Derek’s grandfather, Raphael Oblowitz, a tailor, born in 1880, left Lithuania for Leeds at the age of 20 and went on to South Africa where, by 1907, he became a naturalised British subject of the ‘Colony of The Cape of Good Hope’. One of three brothers, they built a thriving department store, famous for Jewish women’s fashions, but then, using his first name Raphael, he set up his own wholesale and distribution company called Raphael Brothers. So it was that when this company was passed down to Derek’s father, the Raphael name was passed on too.
Derek’s dad, Maurice, served in the South African Army but was captured at the defeat of Tobruk, spending three years as a prisoner of war in Italy and Germany. As Derek explains, as a result of being a prisoner of war, in later years ‘he always kept a biscuit in his pocket.’
Whether it is a Jewish attribute or not, it was the ability to embrace change that perhaps lay behind the decision which ultimately led to the family moving to Lausanne in the 1960s. In 1948, expecting a depression similar to the one that followed the First World War, Maurice sold the business, but it was not until 1960 that the family moved to Lausanne, with Derek, by now a Bachelor of Commerce from University of Cape Town (UCT), following by hitch-hiking to Europe.
It was a chance meeting via his parents that led to his first job with Continental Ore Company in Lausanne. This was the group founded by Henry J Leir that became one of the leading trade houses of the period – simply known as COC.
It might interest present owners of MMTA companies to note that interviews to work for the Leir empire were as far from present day corporate practice as it is possible to be – at 21 years old in 1960, Derek was interviewed alongside his mother and father. I ask Derek to explain. Essentially, it was the Jewish way – Leir regarded his employee’s background as essential to the character of the person, and by the same token he also took his responsibility as employer seriously, as if acting in the place of a parent. I have personal knowledge of this myself – for when sometime in about 1965 my father was also employed by Leir, my sister and I, eight and seven years old respectively, were ushered into Mr Leir’s study overlooking the snow-capped peaks around Crans Montana. My father was asked how he would hedge physical copper cathodes on a wirebar contract and I was offered a stamp for my stamp collection on condition I told Leir what I would pay for it. This was the backcloth to one of the most successful international metals and minerals trading groups of the 20th Century.
Interviewing, or being interviewed for reminiscences, is thirsty work, and Derek gets up to make another tea. When I get to the kitchen, he has already boiled the water and is busy re-using the two bags left over from before.
Today’s chat, if you like, is about the folklore of the metal trade. Derek was part of a generation whose metal heyday was 1963-1973; a period dominated by four major trading groups – Philipp Brothers, Associated Metals & Minerals (ASOMA), Hochschild and finally C0C.
Derek’s early career and my father’s middle years crossed at COC, so I am interested to know how he thinks those companies differed in the way they were run from the big commodity groups of today.
The answer, when it comes – between sips of tea – is quite surprising. ‘First’, Derek says, ‘communications in those days were nothing like today’. ‘Knowledge was not perfect.’ In fact’, he adds, ‘it was totally imperfect!’ ‘The essence of COC was not big positions, not stockholding, but essentially back-to-back business. With 32 offices worldwide this was its strength – those were the communications that enabled the business to channel and serve enquiries. It was all about agency business.’ In the case of COC, they were agents for iron ore for the Brazilian CVRD, ferro-chrome for Rhodesian Alloys, pig iron for Amcor (later Samancor) supplying Yawata Iron & Steel in Japan under a ten-year contract, agents of Duval for sulphur, ferro-alloys for Ugine , and from their own mines in Mexico fluorspar into the USA. The USA was the biggest market and the focus for the organization.
At 21 years old, Derek was sent by Leir to train in the New York office and assigned to Victor Tosoro in the coal department. Tosoro tells him to write to all the coal companies he can think of to try and get an agency to sell coal to steelworks in Italy. As Derek recounts it, one morning the telephone rings and someone asks to speak to him. No-one has ever phoned in and asked to speak to Derek before. Someone in a thick American accent says ‘I am so & so from Peabody Coal & Coke’– until recently one of the largest energy companies in USA – and so begins a long-term contract from USA to Italy.
At another time, Derek is sent to Washington to manage the letters of tender for the acquisition of surplus naval vessels (Liberty ships) and later finds himself sent to inspect a stripped U.S. aircraft carrier towering high above the cityscape of Portland, Maine, a huge empty steel shell to be towed to Japan for breaking up.
The stories are flowing thick and fast and, just in case my iPhone is not recording, I am scribbling furiously to get the facts onto paper. It looks as if it is time for our third cup of tea, and I am conscious we are still trapped in the 1960s and have a bit of a way to go.
But I have noticed a striking thing proved by this metal man opposite me and true of metal people, young and old – they rarely forget a deal. Derek surprises himself more than me with his crystal clear memory of names, prices, destinations – and perhaps, if pressed, who knows, the telephone numbers too!
With his New York training under the belt, in 1962 Derek was sent to Minerais, COC’s subsidiary in Luxembourg, whose main activities were refractories, petcoke and ferro-alloys. There he shared an apartment with another 21 year old, Roger Ehrman, who was in charge of ferro-alloys. Minerais were agents for the Czechoslovak FeMo producer marketing to steelworks in Belgium.
Although I know, as most minor metal people do, that moly is the metal with which his name is most associated, I still want to know how it became such a big theme.
Three things, it seems, happened.
The first was that around this time the then Minerais boss, Dr Francois Mayer, disappeared into Russia and returned with a consignment of 5mt of FeMo, a source which was new to the market.
The second was that Derek was sent to London – a country he had never lived in but which has since become his home for the last 55 years. Leir backed young people and gave them responsibility, and Derek thinks that perhaps Leir believed his British South African accent would fit better into the UK than the Mittel-European accents sported by most of his COC colleagues. What Derek found upon arrival, though, was that the incumbents had been rather busier trying to sell the business than the metal in the business, and ferro-molybdenum was one of the items they were meant to be selling.
To paint the scene for modern eyes, Derek recounts that in those days there were literally hundreds of foundries and electric furnace steelworks in the UK, all consuming FeMo. In the days before molybdenum oxide was the additive of choice, the only product consumed to add moly to steel was ferro-molybdenum. However, at that time, the production scene was entirely unlike today with a long list of UK home grown producers – Hi Speed Steels, Ferro Alloys Glossop, Minworth and Murex – and, in the days before EU harmonization, all protected from foreign competition by a 33% tariff rate!
The third thing that happened was that in 1964 the world’s main producer, Climax, in the USA went on stirke, devastating the supply of MoS2 raw material to UK FeMo producers.
Derek saw his opportunity. He had been in touch with a merchant in Liverpool, H.J.Evans, who simply could not obtain any FeMo for the foundries he served. With Climax on strike, Derek reverted to Luxembourg to see if they could obtain FeMo from overseas and, with Dr Mayer’s opening, the way was clear for Russian metal to make its way to Europe.
The shortage of Mo units was so great that, even at 33% duty, the business was obtained at 29 shillings and nine pence per lb Mo while the official market price was 13 shillings. It was not long before Derek was visiting all the steel plants in the UK and his lifelong involvement with the molybdenum market had begun.
What strikes me as I am speaking to Derek is, in some ways, how little has changed; that there is still room for chutzpah, luck, being in the right place at the right time (when someone gets fired or moves on) and, above, all being open to new ideas.
Communications, it is true, have improved no end today – there is no need for a metal merchant to have 32 offices telexing overnight to each other – but there is the same need to field an enquiry in an ever changing world of supply and demand. There is also the same requirement for merchants to trade something about which they may know little, but follow it through into a business. It was moly then; today it might be tantalum ethoxide, niobium-titanium alloy or rhenium heptoxide (but please don’t get too excited, these are only examples).
Looking back, the 1960’s & 1970s had a geopolitics that has now changed. Then, it was the era of Checkpoint Charlie trade, the need for trading companies to bridge the gap between regimes who could not deal with each other. This might mean navigating between countries who could not pay each other outside bilateral trade limits. If the balance of payments between certain nations was not in favour of the purchaser then a country could not buy direct. In one example, Derek relates, India required Polish sulphur but could not buy it officially, as the bilateral accounts showed no deficit to Poland. This type of trade allowed leeway to the merchant to buy Polish sulphur whose origin would be changed in Rotterdam and then sold to India for cleared dollars.
Another aspect of geopolitics was the building of stockpiles – the Russians were at it, so were the Japanese, the Americans, the French and the British. Being a supplier to a stockpile was a lucrative business led by the American Commodity Credit Corp; and there were examples of companies actually installing plant and equipment purely on the basis of supplying the stockpiles. [It is perhaps one of the ironies of our era that the profit from stockpiles in the last 20 years has all been the other way – with merchants regarding the stockpiles as nothing more than an urban mine to be plundered as needed. It is a history that the Chinese unfortunately have not yet learnt from, as the SRB announces purchases of everything from copper to indium.]
By the 1970s, COC had been sold and Derek took the big step of going on his own; and I am old enough to recall his astonishing offices within one of the Nash buildings at Cornwall Terrace that made a statement of where Derek Raphael and Co. was heading. This was a mixed era, at first highly successful. 1974 was a great year. Suddenly DRC was beginning to look a little bit like COC – there were offices all over the world—there were five offices in USA alone, bulk ferro-alloys to move around, finance available, notably in DRC’s case from the Australia & New Zealand Banking Group who wanted to be in the commodity finance field. But by the 1980s success had bred hubris and this was to come in the form of coal. As Derek says, “If a banker says, ‘I will not finance this’ you should think twice.” The Monongahela dockyard, in the area of Pittsburgh, was to become his temporary nemesis. ‘We don’t finance stockpiles of coal’, the bank had said, but DRC went along and did it. What happened was that the coal price fell and the longer the coal remained stored in the open, the more it degenerated, ground down by traffic, wind, rain and the elements. In simple terms it was a disaster, but such disasters maketh the metal merchant. His empire retracted and DRC secured the ability to take over the U.S. debts in the UK and pay them back out of future profit – he was able to fight another day.
The latter period is one of re-growth. Companies, DRC learnt, did not have to have an office in every capital to appear well-dressed, it was about the ideas, the conversions, the relationships and understanding a sector of the market. Derek Raphael has been a serially profitable metal merchant, he has done it more than once – as he says he can measure out his life in moly booms – 1963-64, 1979, 1993-94, 2003-04 – and he retains one of the best reputations in the business. Today, his son, Andrew runs the company that bears his name, and Derek is free to play as much golf and cricket as his body can take…and drink as much tea as is safe and, thus, tell us a little bit about what it was to be a 20th Century metal merchant.
Anthony Lipmann , of Lipmann Walton & Co, was interviewing Derek Raphael, of Derek Raphael & Co.