Glencore Follows Oil Majors Reaping Bumper Trading Profits

(Bloomberg) --

Glencore Plc said trading profit will be at the top end of its target this year as the commodities giant joins big oil companies enjoying a bonanza from volatile price swings.

The company made nearly $1 billion in earnings before interest and taxes in oil trading in the first six months of 2020, similar to what it made in the whole of 2019, Bloomberg reported last week, citing people familiar with the matter.

Oil trading profits have bailed out the energy sector so far this year. Royal Dutch Shell Plc said Thursday that the last quarter was the best on record for its trading business, while French rival Total SE said it was able to exploit extreme price volatility during April’s record supply glut.

“Our marketing business has also risen to the challenge, delivering robust counter-cyclical earnings,” Glencore Chief Executive Officer Ivan Glasenberg said in a statement Friday. “A very strong first-half performance allows us to now raise our full year 2020 EBIT expectations to the top end of our $2.2-$3.2 billion guidance range.”

In March and April, as oil prices plunged, traders were able to buy and store huge amounts of cheap crude before selling it on later for higher prices, a trade known in industry jargon as a contango play. Still, putting more money into these trades led to an increase in net debt, Glencore said.

The trading profit will be a relief for Glencore. Once again, the miner and trader has missed out on an iron rally that has provided bumper earnings for its biggest rivals, such as Rio Tinto Plc and Anglo American Plc. Glencore’s mining profits are driven by coal and copper, but it has no exposure to the steelmaking ingredient.

While copper prices have been resilient through the pandemic, thermal coal has crashed, falling to the lowest levels since the commodity crisis five years ago.

Glencore responded today by saying it would mine less of the fuel, cutting its target for the year to about 114 million tons, a 14% reduction on its earlier goal. The reductions will come from its Colombian mines, which are struggling because of weak demand for the product in Europe, as well as some lower production from its Australian business. The company said it wants to keep its Prodeco mine in Colombia closed for now.

Glencore is the world’s biggest shipper of the fuel and has previously taken steps to defend the market. In 2015, when prices were crashing, the company made big cuts to its output, ultimately helping the fuel rally as demand recovered.

The company has a long tradition of cutting output to support prices, having held back production in commodities such as zinc and cobalt in recent years after prices weakened.

Glencore’s shares rose 1.4% to 179.48 pence by 9:24 a.m. in London. The stock has lost nearly a quarter of its value this year.

©2020 Bloomberg L.P.