August 25, 2011 / 6:33 AM / 8 years ago

Glencore sees opportunities in volatility as H1 rises

LONDON (Reuters) - Commodities trader Glencore International Plc (GLEN.L) warned of volatility ahead in its key markets but saw opportunities in the turbulence as demand remains strong, with resilient prices helping to boost its first-half profit by 50 percent.

Glencore CEO Ivan Glasenberg is broadcast on a screen during a tele-conference in Hong Kong May 12, 2011. REUTERS/Bobby Yip

A robust outlook and a more modest than expected quarter-on-quarter drop in its closely watched marketing business — which trades commodities from grains to oil — comforted investors, who sent the stock up as much as 6 percent.

“As we look across the board, we still see demand looking strong in Asia, the Chinese see buying opportunities ... so commodity prices are resilient at the moment,” Chief Executive Ivan Glasenberg told reporters.

He added the market turmoil had allowed Glencore to consider acquisitions more aggressively, as the price of listed assets across the sector had dropped while private companies were less optimistic about their outlook

“Is this the bottom? I don’t know, but it is definitely a better time to look at acquisitions,” he said.

In what was taken by investors as a sign of confidence in commodities markets from the world’s largest diversified commodity trader, Glencore said on Wednesday it would spend $280 million (171 million pounds) buying the shares in Australia’s No 2 nickel producer Minara MRE.AX that it does not already own.

Glencore, which owns stakes in a long list of listed and unlisted producers, has consistently said that the ability to seize acquisition opportunities thrown up by market conditions was a key reason for its listing earlier this year, when it ended almost four decades out of the public eye.

Glencore has $10.4 billion of cash, but the miner and trader has also said it will aim to keep a BBB credit rating.

Glencore reported adjusted earnings before interest and tax (EBIT) of $3.3 billion, in line with forecasts, while net income rose 57 percent to $2.45 billion.

Shares in the group, battered during the market rout, were up 3.3 percent at 402.5 pence at 1:15 p.m., outperforming the sector but still well below their listing price of 530p.

Analysts and investors had feared Glencore, whose shares have tracked investment banks more closely than miners, would post weak trading results, as seen at some of the top commodity traders among the investment banks.

“People were worried about the level of earnings volatility in the marketing business in different commodity scenarios and the second quarter was a weaker price environment. Wide of the mark comparisons had been made to proprietary trading operations of the investment banks, which were down (heavily) in the second quarter,” analyst Dominic O’Kane at Liberum said.

“Glencore’s marketing business is down 15 percent — it’s a decent performance for the second quarter.”

ENERGY TO IMPROVE IN Q3

Operating profit for Glencore’s whole trading or marketing division rose 45 percent year-on-year in the first half, but dipped 15 percent in the second quarter against the first, as an improved metals division struggled to make up for weaker earnings in energy products where volatility boosted arbitrage opportunities in the first three months of the year.

“The second quarter has been tight (in oil trading), there has been massive volatility in the oil price and there was no trend in the business ... The opportunities, the fundamentals of the business did not present themselves,” Glasenberg said.

“The third quarter is starting as not bad, but it does not look like it will be in the region of the first quarter.”

Energy trading income fell 37 percent in the second quarter on the first, when it benefited from disruptions to the oil supply chain caused by the Japanese earthquake and Libya, but over the half, income was still more than double a year ago.

Rival trader Noble Group Ltd (NOBG.SI), seen by many as one of the closest models to Glencore’s on the trading side, saw earnings from its metals division recover in the second quarter after a dip in the first three months.

On the industrial side, which includes Glencore’s metals, energy and agricultural production, operating profit rose 54 percent, boosted by higher prices and increased gold and copper volumes, and the company is expected to benefit from ramped up production at key operations in the second half of the year.

Glencore said all its projects are on budget and on track apart from its Prodeco coal project in Colombia, where it was forced to cut production forecasts after delays in the delivery of mining equipment from Japan.

Editing by Kate Holton and David Holmes

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