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Johannesburg - Glencore’s [JSE:GLN] share price went into free fall on Monday morning when it dropped more than 20% in early trade. This pulled the Resources index more than 3% lower and the All-share index again below the 50 000 point level.
Glencore’s drop, which started on the London Stock Exchange, also pulled Anglo American [JSE:AGL] sharply lower and the stock, which was regarded as one of the JSE’s icons, lost more than 7% on by midday with similar losses in London.
READ: Glencore tanks on bearish Investec note
The major indices opened higher on Monday, but lost ground steadily after the bloodbath in the resources sector started. By midday the All-share index was again below 50 000 at 49 968 points, 0.72% lower than Friday’s close, while the Top 40 index was 0.68% weaker at 44 659 points. The Top 40 index is again approaching the important support level of 44 360 points.
The Resources index was at that stage 3.20% lower while the Gold index lost 1.86%. The Financial index, under pressure with the rand near its all-time low on news that a US interest rate hike is now on the cards for December, gave up 1.23%.
The Industrial index was however only 0.05% lower, supported by a jump of almost 4% in SABMiller’s [JSE:SAB] share price on reports that Anheuser-Busch InBev’s offer for the locally-listed beer giant is imminent.
Shortly after midday Glencore traded at only R16.30, 22.20% lower than Friday’s close, which means the share price lost about two-thirds of its value over the past three months.
Before Monday’s big drop the share price lost 23.34% over the previous seven days and an astonishing 40.14% over the past 30 days.
Glencore traded at a 52-week high of R62.71 in September 2014, which meant the share price is more than 60% lower and almost all of these losses happened over the past three months.
All the major commodity companies are suffering because of record low commodity prices, but in the case of Glencore investors are getting worried about the company’s debt situation and the possibility that its credit rating may be downgraded.
The big drop in the share price started when the company announced at its latest results presentation that it would suspend its dividend payments in an effort to preserve cash to lower its debt by about $10bn. The company also issued new shares and will sell some of its assets to achieve that goal.
Concern about commodity company debt levels also spread to Anglo American, which lost 7.72% in morning trade to sell at only R120.74 after starting the year at more than R200. The share price is now at yet another 52-week low which is more than R10 below the previous one.
The big drop also started last week as the share price lost 14.52% over the past seven days before Monday’s fall. The stock is now 33.45% cheaper than 90 days ago and investors have lost 53.5% of their investment over the past five years.
Analysts are expecting that Anglo American will also be forced to review its dividend policy to preserve cash, something the market is averse to.
It is therefore no surprise that BHP Billiton [JSE:BIL], which experiences the same low commodity price pressure as Glencore and Anglo, is far more stable. The company, which stated it would maintain its dividend, lost only 3.87% on Monday morning to trade at R202.87. Before Monday’s drop the share price lost only 5.7% over the past seven days and 5.9% over the past 90 days, a much better showing than its competitors.
Among the other commodity shares that dropped sharply on Monday morning, African Rainbow Minerals [JSE:ARI] lost 11.68% to R54.16 and Kumba [JSE:KIO] traded 9.8% weaker at another low of R76.52.
The star performer was SABMiller, which jumped in early London trading amid speculation that Budweiser maker Anheuser-Busch InBev is close to submitting a bid.
By midday the share traded 3.93% higher at a new 5-week high of R783.10 after The Times and Telegraph newspapers said AB InBev may announce a formal offer as early as this week. SABMiller’s share price is now 15% higher over the past 30 days after world’s biggest brewer said on September 16 it may bid for its nearest competitor.
According to the average of five analyst estimates compiled by Bloomberg, AB InBev may pay more than 4 200 pence for each share of its rival, which would value London-based SABMiller at about £68bn.
Naspers [JSE:NPN], one of the other giants in the industrial sector, traded 2.49% lower at R1 660.28. The share lost 15.4% over the previous 30 days.
