Glencore’s half-year production figures, wherein output for most of its commodities was down, should not have come as surprise.
The commodities trader closed a number of mines in response to a weaker price environment and had previously provided guidance figures stating that year-on-year production numbers would be down 10% on average, according to Investec Asset Management portfolio manager Hanré Rossouw.
“In terms of expectations, the numbers seem to be roughly in line with what they have guided,” says Rossouw. “However, while volumes are down, there has been somewhat of a turn in the prices, and these cuts have helped in that regard.”
He says, for example, that although zinc production was down 31% to 506 500 tonnes, the zinc price for the year to date was up 40%; so, in terms of the price response, the cuts have worked out quite nicely. Oil production was also down 18% to 4.4 million barrels.
Glencore’s copper production was down 4% to 703 000 tonnes, while coal production was down 14% to 58.8 million tonnes after the company sold its Optimum Coal mine, and closed two mines in Colombia.
Agricultural Products and Nickel production, however, were up 43% and 17% respectively.
The one area that is a bit of a disappointment, according to Rossouw, is that guidance has been revised down marginally in some aspects. Despite upping its copper guidance for the year by 20 000 tonnes, to between 1.41 million tonnes and 1.43 million tonnes, estimates for coal were down by 5 million tonnes to a range of 125 million to 128 million because of lower output from South Africa and bad weather conditions.
Says Rossouw: “But their four-year guidance hasn’t changed. The key question is what happens with the financials. Commodity prices are stronger, volumes are down, and also the potential impact that lower production volumes could have on the marketing business. The big focus on Glencore is the marketing business, for which there hasn’t been an update in a while.”
Glencore closed 0.91% higher, at to R34.20 per share on Thursday.