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Glencore CEO: No one can read China right now

Aug 19 2015 12:34
Jesse Riseborough and Javier Blas

London - Glencore’s billionaire Chief Executive Officer Ivan Glasenberg said no one can read the Chinese commodity market.

It’s getting harder to predict metals consumption in China, the world’s biggest user of raw materials, Glasenberg said in a phone interview in London. Glencore reported a 56% plunge in first-half profit on Wednesday and cut the earnings forecast for its trading division.

“China in the first half was a lot weaker than anyone expected,” Glasenberg said. “It’s surprised a lot of us. A lot of the infrastructure and projects they had on plan did not take place.”

Glasenberg, who ran a large part of Glencore’s business with China from Hong Kong in the 1990s, is steering the company through the strongest headwinds since the Swiss commodity trader’s $10bn initial public offering four years ago. Glencore outlined further reductions in capital spending in its earnings report, and is reducing debt in an effort to maintain dividends while preserving an investment-grade credit rating.

Glencore shares sank 6.4% to a record low of 164.80 pence as of 10:37 in London. The stock has slumped more than 60% since its 2011 IPO, hurt by China’s slowest economic growth in a quarter of a century and raw-material prices at a 13-year low.

Aggressive shorts

Weaker conditions in China and the emergence of “aggressive and synchonised” short selling, especially among Chinese hedge funds, have undermined copper prices, Glencore said in its profit report. The metal has plunged 20% in London trading this year.

China is central for commodity traders because the nation uses about 40% of the world’s copper supply and half its aluminum. The country’s strong economic growth in the early 2000s triggered a boom in raw materials demand, known as the commodities supercycle, that sent prices soaring.

The economy expanded 6.3% in the first half, compared to the officially reported 7%, according to the median estimate of 11 economists surveyed last week.

The turmoil in commodity markets has made Glencore the worst performer on the UK’s FTSE 100 Index this year. The stock advanced 3.6% on Tuesday after Harris Associates LP increased its stake to 4.5% from about 1% and called Glencore undervalued.

Glencore’s adjusted net income declined to $882m in the six months to June 30 from $2.01bn a year ago, the Baar, Switzerland-based company said in a statement Wednesday. That beat the $711m average of seven analyst estimates compiled by Bloomberg. It will pay a dividend of 6 cents a share.

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