Trading profits boost Glencore

Commodities trading and mining giant Glencore impressed the markets with its first full-year results since its $66bn takeover of Xstrata in May 2013.

It posted a 7% drop in income to $4.3bn, excluding one-off charges, with a 23% drop in earnings from the mining division offset by an 18% jump at the trading arm. The group mines and markets 93 commodities.

What the commentators said

The “allure” of Glencore is that it’s “a commodity company that can make money whatever commodity prices do”, said Lex in the FT. Try to find a miner whose income has fallen by so little amid the commodity-price slump.

The trading arm is worth 42% of group earnings, and it covers a wide range of raw materials: the trading profits stemmed completely from Glencore’s agriculture sub-segment. Profits at the grain and oilseed business quadrupled, offsetting a decline in earnings from trading mined commodities and energy.

The burning question now, said Elizabeth Knight in the Sydney Morning Herald, is whether Glencore still wants to take over Rio Tinto, leapfrogging BHP Billiton to create the world’s biggest miner. Last year’s tilt was rejected by Rio’s board, but “few believe Glencore has gone away”. The firm merely appears to have “moved into the background to regroup” now that the price of iron ore, Rio’s main product, has further declined.

But rather than go shopping, Glencore may have to concentrate on keeping investors and ratings agencies “comfortable with its debt pile”, reckoned Helen Thomas in The Wall Street Journal.

Its net debt, at three times the earnings of its mining segment, is far higher than sector peers, and its shares have already priced in a recovery in metals prices. Throw in the threat of a downgrade by Standard & Poor’s if it pursues mergers or hands out too much cash to shareholders, and the industry’s “ultimate dealmaker” appears to have “limited room for manoeuvre”.

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