Glencore claimed yesterday that demand from China was picking up, even as it slumped to a $5.1 billion annual loss.
The mining and commodities trading group has been battling to reduce its debt amid the worst commodities rout in decades. Yesterday it took a $7.1 billion hit to the bottom line from writing down the value of its assets, including a $4 billion writedown on its Koniambo nickel operations in New Caledonia, taking its total impairments to $17.9 billion in the three years since its acquisition of Xstrata.
However, Ivan Glasenberg, Glencore’s chief executive, sounded a bullish note on commodities markets, saying that the volumes of metals flowing into China did not suggest that the country was headed for a big slowdown. Concerns over China and a big expansion in global supply have battered commodities prices across the board.
Mr Glasenberg said that the wobble in Chinese demand had been caused by President Xi’s crackdown on corruption, which delayed big copper and iron-hungry construction projects. “We’re still very positive on China and the consumption of our commodities in the long term,” he said, while acknowledging short-term uncertainties. “It’s hard to read exactly what they will do in the short term. No-one expected the corruption campaign would have the effect on infrastructure spending that it did have.
“It’s not only us having good sales into China. All our competitors are having good sales into China. Everyone talks about oversupply. Let’s see if it comes about.”
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Glencore said that it was on track to cut its net debt to less than $20 billion and that it would raise as much as $5 billion from selling assets in the remainder of this year. Its net debt was down to $25.9 billion, from $29.6 billion six months earlier.
Overall, Glencore reported an $8 billion loss for the year, which compares with a $4.3 billion profit in 2014. Allowing for the losses attributable to shares in its mines held by minority partners, it lost $5.1 billion, against a profit of $4 billion a year earlier.
Shares in Glencore dipped 2¾p, or 2 per cent, to close at 130½p on an otherwise positive day for mining stocks.
In September the company outlined a range of measures to cut its borrowings, including a $2.5 billion share placing, asset sales and the scrapping of its dividend for this year. It is targeting net debt of between $17 billion and $18 billion by the end of the year.
Mr Glasenberg said that the groundwork had been laid for a recovery in the commodities markets. “This is not the first time prices have tanked,” he said. “They go down, they go back up. The good thing is that people have cut production, cut capex and they’re not building new production. Look at [capital expenditure]. The top five miners are spending $25 billion. That’s what one of the majors was spending before.”
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Unlike its big peers, Glencore has a sizeable trading business. Mr Glasenberg said that the company’s 2015 performance demonstrated the advantage of its model, because the trading division is less exposed to the vagaries of commodities prices and economic cycles. While Glencore’s mines and industrial assets, such as smelters and refineries, lost $292 million, earnings at its marketing division were down by only 11 per cent at $2.5 billion.