MINER and commodities trader Glencore posted a 29% fall in first-half earnings on Wednesday as a result of sliding metal and oil prices.
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Glencore reported adjusted first half earnings of $6.46bn, a 29% fall from the same period previous year.
Revenue fell 25 per cent to $US85.71 billion.
The company’s “trading arm had previously been viewed as a way of hedging their exposure to a fall in commodity prices, but has also contributed to poor results”, said Rebecca O’Keeffe, head of investment at Stockbroker – Interactive Investor.
Glencore’s closely-monitored marketing division, which is the historic core of the company, reported adjusted earnings of $1.1 billion, down 29 percent year-on-year, and slightly below analysts’ predictions. United Kingdom newspaper The Telegraph over the weekend described Herro as an activist investor building a stake to pressure billionaire Chief Executive Officer Ivan Glasenberg. That was part of the rationale for his blockbuster merger with mining giant Xstrata in 2013 after taking Glencore, then principally a trading company, public in 2011. It advanced 3.6% on Tuesday after Harris Associates LP increased it’s holding from about 1% to 4.5% and said Glencore is undervalued. This compares with Deutsche Bank’s $US1.2 billion estimate.
“Markets are weak”, Glasenberg said. It cited “tough trading conditions” particularly a collapse in aluminum premiums and subdued stainless steel output.
Glencore dismissed comparisons between markets and the financial crisis of 2008, saying actual supply and demand fundamentals for copper were better than pricing would suggest. This will help the group lower debt to $27 billion by the end of 2016, below its target net debt/adjusted EBITDA ratio of 3x.
The company’s stock fell sharply in morning trading in London, dropping more than 9%, as investors knocked off the equivalent of more than GBP2 billion ($3 billion) off Glencore’s market capitalization. Overall losses reached $676 million, reflecting a $0.05 cent loss per share.
Other commodities have also been in decline. It also said it is aiming for another $400 million in cost cuts over the next 12 months.
At the same time, shipped volumes from top exporter Indonesia are expected to fall to 360 million tonnes this year from about 425 million tonnes in 2014, Glasenberg said.
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Net income pre-significant items fell by 56% to $882m. 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. Deutsche Bank, for instance, had been forecasting $1.2 billion in EBIT. All that squeezed trading profits.
