Glencore: Commodities trading robust

2012-05-09 11:45

London - Glencore said trading, which spans oil, grains and metals, was robust in the first quarter while mining projects it hopes will drive production growth were on schedule despite power outages, rain and equipment glitches.

The world's largest diversified commodities trader gave no update on its $35bn takeover of miner Xstrata, which is in the final stages. But it did confirm plans for at least $500m of synergies.

Glencore said on Wednesday that its trading division, which accounted for more than a third of operating profit last year, saw improved fundamentals in the oil market, grains, oilseeds and healthy premia for its core metals in the first quarter.

The division was also recovering from its cotton market hit last year, when the trader saw heavy losses from the combination of a roller coaster market and fixed-price contracts. Its restructured operations there delivered “modest profitability” despite volatility, Glencore said.

The company is due to hold its first annual shareholder meeting since its stock market listing later on Wednesday.

The strong trading signals helped Glencore’s shares rise over 2%, outperforming a 0.3% gain in the broader mining sector, despite production results that were weaker than some analysts had expected in key segments like copper.

Gold, nickel and zinc dipped, while copper output was hit by a mill failure and power cuts in Congo and the temporary closure of a treatment plant in Zambia over what local authorities said were pollution violations.

"Glencore has traded well across all segments of its business in 2012," the trader said, without giving any figures.

Demand from China, the world’s largest consumer of commodities, continues to be healthy, Glencore said.

"It remains our view that available global inventories are generally low, both on exchanges and within supply chains."

Congo hit

Copper production from its own sources rose to 84,500 tonnes from 76,100 tonnes a year earlier, but that was dented by an increase of just 2% from its Katanga growth project in the Democratic Republic of Congo, hit by a mill failure and power outages, a major concern for producers in the central African country. Total copper production was 126,900 tonnes.

"The headline is likely to be a weak first quarter at Katanga...50% below our run rate due to a mill failure," Liberum analysts said in a morning note. "We had expected execution risk at Glencore’s Central African copper... this slow start to the year is likely to present downside risk to our 616,000 tonne full-year estimate."

Glencore's operations in Congo, one of its most promising but also most controversial jurisdictions, were under scrutiny on Wednesday after anti-corruption group Global Witness called for greater clarity on its deals there.

Copper production was also hit by a 7% drop in metal from its own sources coming out of its Mopani operation in Zambia, due to a temporary suspension of a treatment plant.

Gold production from its Kazzinc operations in Kazakhstan rose 24% as recovery rates increased. Glencore confirmed it is expecting to complete a deal to increase its stake in the asset to 93% from 50.7% in the third quarter.

Production of its own coal from its Prodeco operation in Colombia rose 10% to 4.2 million tonnes in the quarter, despite difficult weather and heavy winds that hit the port and sales volumes. Expansion plans are on schedule, Glencore said.

In oil, where Glencore has recently emerged as a producer, the company said current production at its Aseng field in Equatorial Guinea was at the planned rate of 60,000 barrels per day while the Alen field was on budget and schedule for first production in 2013.