Glencore Blames 'Aggressive' Short Sellers for Copper Plunge

Published by MAC on 2015-08-29
Source: Bloomberg

Glencore Blames ‘Aggressive’ Short Sellers for Copper Plunge

Agnieszka De Sousa

Bloomberg

19 August 2015

Aggressive, synchronized short selling, especially from leveraged Chinese hedge funds, has pushed copper prices too low, according to Glencore Plc.

Indicators of supply and demand suggest prices should be higher, the company said in its earnings statement on Wednesday. Mine disruptions from Chile to Zambia mean producers aren’t delivering as much metal as expected, and mining companies may cut production if prices fall further, Glencore said.

“The actual physical flows, the inventory levels are not justifying the prices where they are today,” Chief Executive Officer Ivan Glasenberg said on a conference call. “It’s hedge funds, it’s Chinese hedge funds, it’s U.S hedge funds. They’re all just hitting the commodities at the moment.”

The plunge in copper is hurting companies like Glencore, which reported a 56 percent drop in first-half profit and cut the earnings forecast for its trading division. Copper is down 20 percent this year as China’s slowing economy means less metal is required for construction and manufacturing.

Bearish speculators have piled into the metal and wagers betting on further declines are at the highest on record, U.S. Commodity Futures Trading Commission data show.

“You can’t fight against the flow of money,” Glasenberg said.

Prices fell below $5,000 a ton this week for the first time since 2009 and about a fifth of mines are now losing money, Macquarie Group Ltd. estimates.
Miners Struggling

A growing proportion of miners are struggling with prices this low, Glencore said in its earnings release. Production cutbacks are inevitable in a “doomsday scenario” of prices falling to about $4,400 a ton, Glasenberg said.

“You start to see copper getting down to certain levels, you’re going to see a lot of production cuts,” Chief Financial Officer Steve Kalmin said Wednesday. “That feeds through to the system. There’s going to be no copper around in 12 months’ time.”

Bad weather, power issues and strikes have made it difficult to mine for copper. The disruptions have affected about 600,000 metric tons so far this year, Baar, Switzerland-based Glencore estimates.

The company’s metals and minerals business saw adjusted earnings before interest and tax drop 50 percent to $444 million during the first half. It cited “tough trading conditions” particularly a collapse in aluminum premiums and subdued stainless steel output. The company expects its trading business to improve in the second half.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

“Oversupply, undersupply all depends on demand in China,” Glasenberg said on a conference call. “That’s the one that we’re all struggling to read.”

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Glencore billionaire club loses half of members on stock dip

Glasenberg remains an undisputed billionaire, but the value of his stake has dropped to $2.8 billion now.

Javier Blas & Jesse Riseborough

Bloomberg

20 August 2015

BLOOMBERG – Glencore Plc’s initial public offering minted six billionaires in 2011, when Ivan Glasenberg and five other executives together controlled stakes worth $24 billion.

Today, only three would remain in that elite club — based on the value of their holdings in the company — and two of those are on the brink of losing their status after the shares of the leading commodity trader lost 70 percent since the flotation.

The May 2011 offering generated more wealth than the IPOs of some of Wall Street’s most prominent firms, including Goldman Sachs Group Inc. in 1999. Since then, Glencore’s share price has fallen every year, a decline that’s accelerated in recent months as concern China’s economy is slowing has seen commodity prices dive.

Glencore dropped 9.7 percent in London to close at a record low of 158.95 pence on Wednesday after the company reported a plunge in first-half profit. The shares, which rose 3.2 percent by 2:36 p.m. in London trading on Thursday, are down nearly 45 percent this year.

Glencore Chief Executive Officer Glasenberg remains an undisputed billionaire, but the value of his stake has dropped from $9.4 billion in May 2011 to $2.8 billion now, according to Bloomberg estimates based on public data.

Among his colleagues, the stakes controlled by Tor Peterson and Alex Beard, the heads of coal and oil respectively, are each worth less than $1 billion today.

Reinvesting Dividends

Gary Fegel, the former head of aluminum who left Glencore in 2013, was a billionaire at the time of the IPO based on his stake. Fegel has sold all his Glencore shares since he left and is no longer financially engaged with the trading house, he said in response to a Bloomberg query.

If he had continued to hold his stake in Glencore, it would be worth $385 million today.

Daniel Mate, head of zinc, and Telis Mistakidis, head of copper, are just above the billionaire line, with stakes valued at $1.04 billion and $1.03 billion, respectively, down from about $3.6 billion four years ago. If the shares drop another 5 percent, they will become multi-millionaires.

Glasenberg and some of his executives have bought more shares over the years, reinvesting their dividends.

Glencore declined to comment.

Peter Grauer, the chairman of Bloomberg LP, parent of Bloomberg News, is a senior independent non-executive director at Glencore.

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Glencore Earnings Fall As Expected But Dividend Maintained

Bloomberg

19 August 2015

LONDON - Glencore PLC on Wednesday reported a substantial fall in earnings, as expected, in the first half of the year, due to weaker commodities and oil prices and following the company's mixed production results earlier this month.

Glencore, like its peers, is suffering from steep declines in commodity prices such as iron ore and copper, whilst also battling the decline in oil prices, compounded by a slowdown in economic growth in China, the world's largest importer of metals.

Shares were down 5.4% at 166.45 pence, easily the biggest FTSE 100 faller in a down market Wednesday morning.

The multi-commodity miner reported a pretax loss of USD527.0 million in the first half of 2015, swinging from a USD2.49 billion profit a year before, as revenue dropped to USD85.70 billion from USD114.06 billion.

Glencore had already warned earlier in August it would book a USD790 million impairment related to its assets in Chad due to the decline in oil prices. Exceptional items totalled USD1.55 billion in the first half, comprised of the Chad impairment, a USD377 million foreign exchange loss, a USD256 million loss on Glencore's stake in London-listed Lonmin PLC, and USD235 million related to a metal leak. The metal leak occurred at the company's Koniambo mine in New Calendonia back in December 2014.

That is a large rise in exceptional items, compared to the USD290 million booked in the first half of 2014.

Net income before exceptional items also fell dramatically to USD882.0 million from USD2.01 billion.

Glencore reported earnings before interest, tax, depreciation, amortisation and exceptional items of USD4.61 billion in the first half of 2015, down 29% from USD6.46 billion a year earlier.

Ebit before exceptional items was down 61% to USD1.42 billion from USD3.62 billion, with the fall in earnings mainly caused by the fall in commodity prices.

Marketing Ebitda, meaning Glencore's trading arm, was down 27% to USD1.20 billion with an Ebit of USD1.10 billion, down 29%, both caused by "tough metals' trading conditions", with aluminium and nickel particularly affected by the collapse in physical premiums and subdued levels of global stainless steel production.

Glencore said it expects "better second half contributions from metals and agriculture to underpin full year Marketing Ebit guidance of USD2.50 to USD2.60 billion".

Industrial Ebitda, meaning metals and energy production, was down 29% to USD3.40 billion also due to weaker commodity prices and a weaker exchange rate environment. Despite the fall, Glencore said its Ebitda mining margin fell to 24% from 30% whilst its energy Ebitda margin only fell one point to 28%, "reflecting the quality" of its asset portfolio, it said.

In terms of the earnings by business segment, metal and mineral commodities experienced the largest fall to an Ebitda of USD2.89 billion from USD4.41 billion and an Ebit of USD991.0 million, down from USD2.79 billion, even as revenue climbed to USD32.01 billion from USD31.58 billion.

Its energy product segment, including oil and coal, produced an Ebitda of USD1.64 billion compared to USD1.72 billion and an Ebit of USD458.0 million from USD621 million, as revenue dropped to USD42.96 billion from USD71.30 billion.

Its agricultural products such as wheat produced an Ebitda of USD332.0 million, down from USD619 million, and an Ebit of USD230.0 million, compared to USD508.0 million a year earlier, with revenue falling to USD11.85 billion from USD12.58 billion.

Net debt at the end of the first half had fallen to USD29.60 billion, compared to USD30.50 billion at the beginning. By the end of 2016, the miner is hoping to have net debt fall further to around USD27.0 billion.

"As the group is currently generating positive cashflow and has extensive balance sheet flexibility and optionality, including via potential further reduction in net working capital and the sizeable

long term advances/loan book, we believe this target is eminently achievable," Glencore said in a statement.

The miner kept its interim dividend flat year-on-year at 6.0 cents per share for the first half, alleviating worries that the company would cut its dividend to cope with the fall in commodities prices and its large debt.

Glencore said its flat interim dividend reflected its "confidence in the quality of our underlying operations, commodities mix and sustainable cash flow profile".

Glencore's asset disposals also continued in the period, with the distribution of its 23.9% stake in Lonmin completed in June at a fair value of USD298 million, which led to the USD256 million loss recorded as an impairment, and the sale of assets inherited from the Xstrata acquisition in 2013 of the Tampakan copper project and of its stake in the Falcondo nickel operation and the Sipilou nickel project for a total of USD290 million.

Glencore already released its production figures for the first half earlier in August, and the results were mixed. Copper, lead, coal, gold and silver production all fell in the period with zinc, ferrochrome and oil being the only areas experiencing a lift year-on-year.

The biggest rise was in Glencore's oil entitlement, up 68% to 5.3 million barrels in the period, whilst zinc production was up 12% year-on-year to 730,300 tonnes and ferrochrome production was 16% higher at 756,000 tonnes.

Copper production fell 3% year-on-year to 730,900 tonnes, whilst coal production fell 4% to 68.7 million tonnes. Lead production dropped 2% to 146,200 tonnes from 148,900 tonnes, whilst gold production fell 10% to 411,000 ounces from 458,000 ounces, and silver production was down 3% to 16.2 million ounces from 16.7 million ounces.

The miner also slashed its capital expenditure budget earlier in August after spending USD3.0 billion in industrial capital expenditure in the first half. That is now expected to total USD6.0 billion for the full year, down from its previous guidance range of USD6.50 to USD6.80 billion.

On Wednesday, it said it will look to spend no more than USD5.0 billion in 2016 based on current market conditions.

"Our core industrial assets remain well positioned on their respective cost curves. We remain by far the most diversified commodity producer and marketer and are well positioned to benefit from any improvement in pricing when it finally and inevitably materialises," said Chief Executive Ivan Glasberg.