Tuesday 12 December 2017

Glencore's shares hit record low after trading division earnings report

Glencore mining
Glencore mining

Olivia Kumwenda-Mtambo

Miner and commodities firm Glencore cut its forecast yesterday for earnings from trading, a division meant to help cushion the company against tumbling commodities prices, sending its shares to record lows.

Glencore said tough market conditions, especially for aluminium and nickel, were hurting the business even though it had previously said the trading division would meet earnings targets whatever happened to commodity prices.

Announcing a 29pc slump in first-half earnings yesterday, Glencore said it expected trading, or what the company calls its marketing division, to post full-year earnings before interest and tax of $2.5bn-$2.6bn (€2.2bn-2.3bn).

Glencore chief executive Ivan Glasenberg had previously said he expected the trading division to generate $2.7bn-$3.7bn in full-year earnings before interest and tax "no matter what commodity prices are doing".

The company's shares slumped more than 9pc to a record low of 159.5 and were down 8.1pc at 10:50 GMT, the worst performer on the FTSE 100 stock index.

"Glencore's high exposure to copper, whose prices are at their lowest since 2009, is a weakness. Also, the lower projected earnings of the company's trading arm, which is supposed to help the firm buck the commodities cycle, highlight the limits of its business model in this low-price environment," said Sebastien Marlier, commodities analyst at the Economist Intelligence Unit.

Glencore shares are down about 40pc this year, underperforming other global miners such as Rio Tinto and BHP Billiton, and compared to a 26pc fall in the FTSE 350 mining index.

Glencore also said it would cut capital spending again next year to $5bn from a previous forecast of $6.6bn. It trimmed capital spending plans for 2015 last week to $6bn from a $6.5bn to $6.8bn range announced in February.

"It's hard to predict what China is doing, as an industry we should not be increasing production in anticipation of China demand," Mr Glasenberg told reporters.

"We will pull back our own production if necessary. Keep it in the ground, you can dig it out any time." (Reuters)

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