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By Scott Patterson
LONDON -- Glencore PLC, long known as one of the world's dominant coal traders, in a twist is finding itself the beneficiary of the greening of the global economy.
The Swiss mining giant is benefiting from a coming boom in electric-vehicle production, which is driving up the value of copper, cobalt and nickel -- whose demand is expected to surge from production of the vehicles and the lithium-ion batteries that will power their growing fleets.
"Electric vehicles will be disruptive to the world," Chief Executive Ivan Glasenberg said on an investor call Tuesday, and will boost demand for those three commodities.
The shift toward commodities that are likely to benefit from policies meant to curb global warming is a noteworthy shift for a company that once bet its future on coal. Mr. Glasenberg said days after Glencore's 2013 purchase of Xstrata PLC that the deal -- the mining sector's largest ever -- was a "a big play" on coal.
But tumbling coal prices in the following years dinged Glencore's earnings, raising concerns that Mr. Glasenberg's bet had gone bust. Coal prices have rallied in the past year along with most other commodities.
Now, commodities involved in the production of electric vehicles are becoming a primary earnings driver for Glencore. On Tuesday, the company forecast strong production growth in all three metals over the next few years, primarily due to electric-vehicle demand. It expects copper production to gain 25% by 2020 from 2017, cobalt -- of which it is the world's No. 1 producer -- to more than double and nickel to rise 23%.
The company said it has completed an $880 million upgrade of one of its massive copper-mining operations in Congo -- Katanga Mining -- which will help it benefit from rising demand for copper and cobalt.
Glencore had suspended production at Katanga in September 2015 so it could refurbish the mine and double annual production of copper to 300,000 metric tons, a goal it expects to reach in 2019. It said Katanga is expected to produce 34,000 tons of cobalt by then, likely making it the most productive cobalt mine in the world.
A CRU Group report commissioned by Glencore forecast that by 2020, electric-vehicle related demand -- including grid infrastructure and storage, electricity generation, charging stations and the vehicles themselves -- could require an additional 390,000 tons of copper, 85,000 tons of nickel and 24,000 tons of cobalt.
Year-to-date, copper prices have gained 19%, nickel is up 8.5% and cobalt has more than doubled, according to FactSet.
Shares of Glencore are up 26% this year and have risen more than fivefold since investors fled the stock in 2015 amid concerns that tumbling commodity prices could strain the miner's debt-laden balance sheet. Since then, Glencore has slashed its net debt to $13.9 billion from nearly $30 billion.
Cobalt, a byproduct of copper and nickel mining, is expected to see the biggest increase in demand from electric vehicles. Cobalt demand from electric vehicles could surge to 314,000 tons by 2030, a more than fourfold increase from global supply in 2016, according to the report by CRU, a London-based commodities researcher. Mr. Glasenberg said he doubts there is enough cobalt in the world to meet that demand.
"Cobalt is basically off the charts," Mr. Glasenberg said. He said metal prices are going to need to increase to provide incentives for miners to start new projects to supply the commodities required for rising electric-vehicle demand "which we believe is sitting around the corner."
Analysts say rising demand for cobalt could provide a supply bottleneck for electric vehicles. One concern is over Congo, which supplies about 60% of the world's cobalt -- much of it
because previously it seemed to like a price around £2.75 and it's been dropping the past few weeks really with the odd blip. Market loves rotting the SP down to something small investors cant fathom out why it's so low. It's lost what 58p now in the past 2 weeks? not that impressive and others are jumping on the bandwagon. there was some major sells yesterday, like £12m, £6m etc. smart money knows its tanking for christmas and bailing. then again surprise smart money didn't sell them at £3.80+!
Moving on to what? That's the trouble everthing looks toppy ...do you not think glencore will go up ? It's a very different beast to what it was heavily in debt and a low SP now it reduced its debt dramatically and back to paying a dividend a lot higher SP and brokers have this at well over £4 the majority of them
Has anyone got any thoughts on the price drop and where the bottom is ? £3.20s £3.30s and why this current price drop has occurred from £3.80s to now? When glencore is doing so well with its debt reduction and improving finance
EW -- Let's see on WPP in a year from now. Content in advertising is still important -- but you are right about the measurement of the effectiveness of ads and that is what is haunting the market view on WPP at present. I see Britvic is fizzing today which is 3% of my wad.
Getting out of Glencore seems a reasonable call so far.
First, I'll just point out that GLEN is largely moving with the Cu price and shaking off various potential legal problems as many large companies do these days.
The analysts still don't get it. How GLEN can go down during a rising oil price environment which will be boosting GLEN's trading revenues massively is beyond me. I attempted to add more but my limit order has been foiled by the rise in copper the last couple of days.
[O/t RE: WPP] Games, " it's pretty cheap for a company that's grown at a compound annual rate of 31% for 30 years."
Projected flat this year, though, which is why the market has slaughtered the share price, I guess.
It isn't just about 'digital'. It is the fact that Google and Facebook can match advertisers to their customers very, very precisely - and have the data to prove it. Far more than that, SME's especially, have the obvious correlation between ad campaigns, additional click-throughs or other responses and new sales laid out before them 'in black and white'.
A different type of marketing very often to WPP's big 50 main customers that provide most of their revenue. Facebook and Google are now their two biggest customers, ironically. However, so far as I know, WPP don't have the vast results from years of 'data mining' that can match customer's aspirations and latent demand with suppliers. Even if they have it, they probably can't pull it all together from all their groups, and then would need to pay Google, FB and others for use of their platforms.
If you have ever worked in a small business with some cash budgeted to attempt advertising to increase customer numbers and revenues you will know just how hit and miss this once was. Most of the time you couldn't be sure any increase in sales was actually down to the ad campaign. What is on offer now changes that whole outlook completely for many a smaller company - though it wont be appropriate for all.
'Blue sky thinking' to open up brand new markets will still be required too, although every time someone responds to one of those quizzes friends post on Facebook they are giving market research companies invaluable insights into possible new markets along with many other things. Nothing stopping WPP companies placing such data gathering devices on FB themselves, of course, but they'll have to pay for the privilege.
Expertise in some areas like global brand promotion will probably remain within WPP's bailiwick for some time to come... until replaced by Google's A.I. blue sky thinkers maybe ... but that is exactly the part of the market where cost cutting took place this year.
Will GLEN make a bid for the rest of Zanaga Iron now that everything is in place to proceed with development of the site? It could add value at the right price and the shareholders in Zanaga could be attracted to a deal with the stock currently significantly undervalued. Watch this space!!!
If my 'range order' has worked correctly, I will have bought some more GLEN today @360 with a plan to sell @380p (I still hold a tranche average around @280p). I'm not actually logged into my account s you can tell. but, even if that order has gone through I remain well over 20% in cash now, and am approx 5-6% short on the FTSE 100 also.
Be careful with WPP, I'm not sure Sorrell fully understands what the problem is in the way he weights the problems with competition from Facebook and Google.
WPP now forecasting flat growth for the year, FB just reported an 80% increase in ad revenues last quarter. Yes, those two are WPP's biggest customers, but they also bypass WPP increasingly, I believe.
I may be wrong and maybe there is a pressure on big business to keep costs down despite a reasonably buoyant global market. Sorrell should know, given his salary, but I'm not convinced his analysis that their large customers spending less with them is a 'Pavlovian response' they re all following blindly. Those companies also have pretty clever CEOs.
Anyway, its just a view and WPP have many fingers in many types of pies surrounding the whole advertising business so they may well find current customers spending more next year and some of their own divisions may come up with sources to better target ads.
Ultimately, I think they're being squeezed because there is a cheaper way to better get the message to your customers these days. So his strategy better deal with that.
Good luck. The way the country is crumbling around us we're all gonna need it soon. (Interestingly ad spend from big companies has remained strong in UK in a declining economy).
Eadwig, appointment with MP next week, except he's been suspended. Will he still do his constituent surgery AND still haver some clout against HMRC on my behalf?? Probably not knowing my luck.
"It certainly does. Then again, so did it this time last year, and I know some people who have been sitting in cash and missed a lot of potential growth over that time."
EW -- I see your point and it's not a long term plan -- but I've only just moved to cash having sold Glaxo at the peak, 1/2 Burberry (which after today's drop I bought some back), Diageo because it's being run by a lunatic, AZN after great profits but the business is dying, JMAT, Glencore, RIO.
So mostly profitable holds now gone and 28% in cash.
I'm selectively picking up the bones of the falls after results announced. Bought some WPP at 1288
Games, "Cash looks like a reasonable option at the moment"
It certainly does. Then again, so did it this time last year, and I know some people who have been sitting in cash and missed a lot of potential growth over that time.
Personally I have a short position on the FTSE 100 (using ETF UK3S) which has mostly lost money over the last 12 months (occasionally I've made short term profits and even done so going with the long version of the same ETF UK3L).
The overall position is currently 12% underwater approx, which means the FTSE 100 must drop 4% for me to break even overall as the ETF is 3x leveraged.
Perhaps not a wise decision. On the other hand, it has enabled me to have more cash in play than I might otherwise have had since I have been fearing a major correction and whenever we do get a pullback of a percent or so, the overall damage to my portfolio value is always mitigated by this hedge gaining in value, especially as it has on occasion been as high as 8%-10% of my portfolio size.
In hindsight it has been a drag on my profitability. On the other hand, I'm still on target (ahead actually) 19 months into a 5 year plan to gain 15% p.a. and so long as I maintain that momentum, especially if I can achieve the overall target, then I shall remain well satisfied with my performance.
Don't have any problems with someone being out of commodities completely. If it weren't for GLEN and a couple of junior miners, I would be too. Last night I sold my final holding in a major oiler, EOG Resources, for $100. Fx costs on 50 shares over £18 which I could have saved and seeded my USD account with the new ii set up that is coming...
But that isn't until mid December - and there's no relying on the oil price remaining as high as it is over the weeks in between, so better to take the profit and exit a sector that I'm not at all confident about longer-term ... and add to my cash percentage on hand.
As the head of Vanguard said in an interview last week, "The correction is coming, we just don't know if it will be next week or in 2 years time, and we don't know if it will be a 'black bear' 20% or a 'brown bear' 40% correction". ! !
This man is in charge of $3.5 trillion dollars of assets, by the way, so presumably knows what he is talking about. After making this statement he was asked if he was advising customers to move into cash and his reply was, "No, not if you are taking a 10 year view, then we still see stocks as the best asset class for returns".
Maybe so. Personally I'd like to sell near the top and re-buy near the bottom of any such correction in which case 'getting back to even', will happen all the more quickly. Meanwhile, I'm desperately attempting to keep 20% cash on hand and have around another 20% in AIM companies which may continue to perform, at least somewhat, despite a general across-the-board correction which will drag down all global markets.
For better or worse, I've taken my 36% profit somewhat rescued from a once 80% loss or some such number.
Going forward? -- I haven't the foggiest with Ivan at the helm -- so with RIO gone I'm completely commodity clean at the moment and cash heavy.
Cash looks like a reasonable option at the moment since every company that reports it's figures (good or bad) is being caned and some unfairly.
ames, "EW - When do you plan to short or exit Glencore before the inevitable down cycle and next debt stress which Ivan looks like he's building."
I don't short individual companies. I don't have an account that gives me the ability to do it. My shorts re via ETFs and tend to be indices or commodities. Not a practice I'd recommend anyone getting into lightly.
I have just one tranche left in GLEN and generally happy to let it ride and take the divis, much beefed up from the nxt payment onwards.
Though it looked like it was approaching @380p the other day which made me stop and think. But then I wondered what I would do with the money while I was waiting for the price to drop back to under @300p, and I didn't have any good answers. So I left it.
If it hits @400p I'll probably exit anyway. We're bound to get another chance substantially lower than that, sooner or later.
Ivan is broking some enormous deals with some heavy duty world players (Qatar Sov. Fund and Russian government) who have some heavy duty global and regional enemies, so who knows where all that might all end up?
Critical time for you now then Beagle. Probably as well to take profits and reduce exposure, especially in volatile cyclicals like this.
Everyone knows there is a correction on the way, and if you're in the unhappy position of your pension pot taking its value from a single day or month and that will set the tone for your standard of living for the rest of your life, then now is a good time to be getting out. Even if you are a couple of years away, you should be withdrawing, in my humble opinion.
If you think I'm talking nonsense, take a look at the FTSE 100 chart going back 25 years. In 6-12 months from now your portfolio could be worth 2/3rds of what it is right now very plausibly - its happened twice before over the last quarter century.
I did something like sell up near retirement but you try to leave the markets alone.
you keep looking at other things out there saying that looks ok then we are back in again.
good luck to you, and all the best when you retire.
Ps.I retired 7 years ago and this is the best game in town.
Well, fwiw I've decided to cash in my profits (bought at 92p) and maintain my residual interest via my holding in BRWM. Maybe I'm losing my bottle, but all this talk about China resources slowdown and market corrections have got to me when I'm 6 months off retiring, so I'm going defensive.
" FTSE THIS WEEK & THE DAX (FTSE:UKX & DBI:DAX) It's probably one of these uncomfortable subjects but it's become increasingly difficult to ignore what's happening in Germany. The smart money has spent October frantically shorting a market ..."
"You are entitled to your opinion of course. I think any fair-minded person can see a distinct correlation -"
EW - I guess a fair minded view can only be concluded by making a comparison of the value of the businesses in each region.
If it turns out the value in terms of turnover and profit is 75% atributable to safe regions for RIO for example and only 30% for GLEN, then and only then can you draw a fair comparison.
I'm inclined to escape this stock very soon as Ivan has started potential irrational spending and that could lead to another round of unsustainable debt like last time.
Closer to 400p which it is heading, looks good enough for me given the risks associated with this company and the fact the management nearly drove it into administration last time around.
Games -with a negative ROCE in the last 6 years, it's no a safe haven by any means -- nor is RIO for that matter, albeit that they don't seem to be risking as much money at the present time.
I keep holding on to a bit of this, although I haven't the fxggiest idea if it's a good bad or indifferent thing to be doing -- but every time I come to look at it and get rid of it it's jumped up a bit more.
My intransigence seems to have paid off in a small way.
LKH, "Your maps are very misleading. Superficially they suggest that the spread of both RIO's and GLEN's businesses is similar"
Not my maps. RIO's and GLEN's.
You are entitled to your opinion of course. I think any fair-minded person can see a distinct correlation - especially after you strip out the logistics, offices and agriculture from Glencore's worldwide map to give something close to a valid comparison in business activity.
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