Glencore reports working capital freeze as commodity markets rise and correct

Inside view of the furnace in the aluminum foundry

GLENCORE is expected to report its best-ever trading profits after six months in which commodity prices surged but were also volatile.

In June, the company expected its business division’s half-year adjusted operating profit to exceed $3.2 billion, the upper end of its long-term annual outlook range.

According to Bloomberg News, today’s volatility caused a major freeze on working capital at the Swiss-based mining and trading company.

Large daily price swings have also become a liability, with exchanges and brokers demanding more and more money to place and maintain trades, the newswire said. Some smaller players reduced their exposure to avoid a sudden liquidity crunch, but Glencore, with its large balance sheet and credit lines, instead saw its working capital jump, the newswire said.

“Our net working capital increased significantly over the period, in line with significantly higher oil, gas and coal prices, and their elevated market volatilities,” Glencore CEO said today. Gary Nagle, in the company’s semi-annual production report.

“These factors lead to a timing mismatch between the positive net fair value of physical futures contracts (which are not margined) and the related derivatives margin requirements (which are margined),” Nagle said. . “Various commodity exchanges have also significantly increased their initial margin requirements.”

Reuters quoted RBC Capital Markets analyst Tyler Broda as saying of the production report that: “Underlying earnings will be very strong and when markets return to lower volatility, that working capital will be freed up, which will make it a temporary impact.”

Glencore will produce slightly less copper this year, lowering its target by 50,000 tonnes. Geotechnical problems at the Katanga surface mine led the London-listed miner to aim for production of 1.06 million tonnes (Mt) for the year, down from 1.11 Mt previously.

It is also still assessing the impact of flooding on its Australian coal business and said the negative effect has not yet been included in its current forecast. Coal production increased by 14% to 55.4 Mt in the first half thanks to higher production from its Cerrejón mine in Colombia.

However, South African thermal coal production fell by 23% to 8.3 Mt – a sure sign that the freight difficulties faced by Transnet Freight Rail continued during the six-month period, according to a report by Business Live.

Flooding and reduced domestic demand have added pressure to the country’s logistics network, with TFR struggling with maintenance issues, theft of cables and availability of locomotives, BusinessLive said.

Unlike its mining rivals, which bowed to investor pressure to exit fossil fuels, Glencore mines thermal coal, the prices of which have reached record highs, reflecting shortages during the prolonged COVID-related lockdowns and the war in Ukraine. , and trades millions of barrels of crude oil a year.

Glencore rival Anglo American said earlier this week that metals and minerals markets were proving difficult to read due to volatility.

“Times are very unstable and it’s quite difficult to predict in the short term which direction it’s going to go,” Wanblad said on a media call.

“Basically, China is an important market for all of us. I think China is well positioned to boost at some point. Whether it’s six months from now or six months after that, it’s very likely to happen,” he said.

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