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The Next Leg Of The Commodity Carnage: Attention Shifts To Traders - Glencore Crashes, Noble Default Risk Soars
One month ago we asked:
Which will be first: Trafigura, Mercuria or Glencore
— zerohedge (@zerohedge) July 22, 2015
Today we got our answer.
Commodity trading giant Glencore may have top-ticked the commodity supercycle with its 2011 IPO, but it's been downhill ever since (66% downhill to be precise if measured by the tumble in the stock price), culminating this morning when the Baar, Switzerland-based mining and commodity giant reported a first half net loss of $676 million, compared with net profit of $1.72 billion a year ago.
Revenue tumbled 25% to $85.7 billion after the company admitted China's economic slowdown had caught the company "by surprise" and that no one in the mining industry "can read China" at the moment. The result: GLEN stock had plunged by 9% as of the last check, wiping out $3 billion in market value, and down a whopping 44% in the past three months, substantially underperforming its peers Rio Tinto (which Glencore once tried to acquire) and BHP Billiton.
In addition to the poor earnings, the company slashed both its operating outlook and its spending plans: Glencore said it expected trading, or what the company calls its marketing division, to post full-year earnings before interest and tax of $2.5 billion to $2.6 billion. Glencore Chief Executive Ivan Glasenberg had previously said he expected the trading division to generate $2.7 billion to $3.7 billion in full-year earnings before interest and tax "no matter what commodity prices are doing".
It would appear what commodity prices are doing mattered after all.
Perhaps more concerning is that as a result of Glencore's 29% EBITDA tumble to $4.6 billion the company's default risk as measured by its CDS, had surged to the highest in over two years. The reason is that while the company has been deleveraging its debt load "somewhat" it appears not to be enough, and now fears have appeared that at this rate, Glencore may lose its investment grade rating soon. CEO Ivan Glasenberg hinted as much when during the conference call he said a a modest rating cut was manageable. "Even if we drop one notch, it isn’t a high cost to the company," he said on the call. To many this sounded like a confirmation that a downgrade is imminent.
The company attempted to smooth over the damage when it said it lowered net debt by almost $1 billion to $29.6 billion, by reducing capital expenditure together with lower requirements for funding working capital at its trading business, adding that Glencore plans to reduce net debt to
$27 billion by the end of 2016, while maintaining its dividend-payment
plans.
However, judging by the stock and CDS price chart below, it did not quite achieve the desired result.
The FT summarizes the company's cap table, which is not pretty: "The value of the company’s shares has shrunk to £22bn, compared with net debt of $29.6bn excluding inventories of $17bn it says it can sell swiftly. Glencore aims to maintain dividends, which cost more than $2bn a year, alongside a ratio of net debt to earnings of under three times. At an estimated net debt level of $27bn, earnings of $9bn will be required in 2016."
In other words, a dividend cut for Glencore now appears in the cards, and is virtually inevitable if copper, which is trading under $5000 at six year lows and is massively levered to how China's economy dies, is unable to stage a bounce.That looks increasingly unlikely especially following the recent breach of copper's 15 year support trendline:
Why copper? As Reuters reminds us, formerly just a commodities trader, Glencore merged with mining company Xstrata in 2013. The marketing business was seen as a plus in diversifying earnings of the combined company as its success was not so closely tied to commodity prices.
The price of copper, Glencore's largest earner, is at six-year lows weighed down by a slowdown in China, one of the world's biggest consumers of metals and other raw materials.
"We are still looking for growth in both copper and zinc production in the second half of 2015 and then continuing in 2016," Kalmin told Reuters. "Those in particular are the two commodities that we see going forward fundamentally looking in much better shape than other commodities."
Coal prices, another major commodity for Glencore, also show no sign of recovering due to a supply glut.
Yet despite the collapse in coal, copper and other commodity prices, Glencore has been slow to adjuts. Competitor Rio Tinto this month said it planned $1 billion in cost cuts this year and Anglo American is to cut thousands of jobs in the next few years and may sell assets. Analysts had expected deeper cost cuts by Glencore to ease the strain on its debt levels and protect its credit rating. However, perhaps in expecting yet another dead cat bounce, the Swiss company has so far avoided dealing with the looming commodity crunch. Its stock is reflecting that this morning.
Worst of all, however, is that while Glencore's existing commodity exposure as a result of its miner "hybrid" nature may go up and down, its trading operation was supposed to be a natural hedge to deteriorating fundamentals: after all, commodity trading should be vibrant even when (and perhaps especially) prices drop. That also did not happen: the company’s trading division reported a 29% drop in first-half adjusted EBIT to $1.1 billion over the same period, lower than some analysts expected. According to the WSJ, the company blamed everything but itself for this disappointment:
Glencore blamed tough trading conditions, particularly in aluminum and nickel, as well as coal markets. A slowdown in Chinese economic growth caught the company by surprise, it said, restricting access to credit there and softening demand. All that squeezed trading profits.
The company’s agricultural-trading division also suffered, due in part to Russia’s unexpected imposition of a new Russian export tax in February. The only bright spot in trading was in energy, where volatility in the oil markets helped the company report a profit despite the slump in coal prices.
But the punchline came during the call when Glasenberg blamed "speculators", not so much China, for the lower commodity prices. Of course, it goes without saying that when commodity prices were at record highs, it was all thanks to the fundamentals.
In any event, while the market remains focused on the miners, our warning from one month ago remains more relevant than ever: the real surprise will be the traders: the Glencores, Mercurias and Trafiguras of the world, who may indeed be quietly liquidating billions in paper commodity exposure.
And not just them: yesterday we noted the ongoing collapse in Asia's largest commodity trader, Noble Group. This is the real canary in the Asian coal, and copper, mine. Judging by the ongoing blowout in Noble Group CDS, up another 48 bps since yesterday's note...
... the pain in the commodity world may be about to get a whole lot worse especially if Noble Group suffer a liquidity/capitalization 'event' and is forced to liquidate any of its billions in commodity holdings.
It is at that point that we will see just how immune to the commodity carnage the US stock market truly is.
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almost time to buy.
The rails are so close to coming off the tracks in my opinion. I am buying every day.....I have a $30K credit card zero interest for 18 months....may have to roll the dice too. You ever watch that fucking channel "MSNBC" they had a phsychologist on last night saying that the republican party is putting thoughts in our heads that are fantasy, and we are excepting them. They were explaining how Trumps campaign is just opening up fantasy dreams in peoples heads.....then they were talking about Hillary and the emails...trying to say that Collin Powell and all of the rest in the past have always done this...trying to just play down that this is a republican attack. My neighbor always has this channel blasting on a big screen in his garage...I had to see it. Chris Mathews...what a fucking clown. Then you jump to Fox.....they are now the Trump station. This is going to get real good. Then we have September almost upon us....is IT going to happen? I don't know what the fuck "IT" is ...but is it?
There is not one day that "IT" is going to happen.
"IT" has been happening for some time now.
Some are accepting this and prepping to deal with it.
Most are sitting around still waiting for "IT" to happen.
I'm as ready as I can get. Now I just enjoy the world before somebody sets a match to it all. Everything that is happening and is going to happen could of been prevented a long time ago, but greed rules and bending reality to your will is much easier when you control the hammer and anvil that the system has become......
Food, my friends, food. Stack some more food.
Not just food, but also things like medicine, light bulbs and clothing. Could be awhile before we have a working economy again.....
Agree with "food". If collapse continues, food is the difference between life and death. You can't have too much. All else is secondary. And it can be, maybe should be, simple stuff. Beans, rice, wheat, fats, maybe some sprouting seeds like mung beans. That will keep you alive and supplement what you can grow/kill..
Caches if that is feasible, to reduce the chances of losing it all.
Hey, "IT" Happens...
I have a $30K credit card zero interest for 18 months....may have to roll the dice too.
In a properly managed Medium of Exchange (MOE), only reliable traders enjoy zero interest load. Reliable traders "don't roll the dice".
EXCLUSIVE: Hillary's email firm was run from a loft apartment with its servers in the BATHROOM, raising new questions over security of sensitive messages she held.
In a bathroom closet? Really? It couldn't be a hall closet or a bedroom closet. No. All our precious national secrets are just a whiff away from her smelly dumps! Geeze!
Yea, those state security snips would be embarrassing for the usa and probably put 99% of the government jackasses in prison.
Can't have that,,, can we?
State Security IS the greatest threat to our National Security.
Just let them commit more felonies. The jail time becomes longer.
There are conflicting reports. I think right now the story is that it was in the bathroom in the office of Platte River Networks, and not kept in her home at all.
Good thing IT companies Never run secure back up services /s
Only the dozen or so on the GSA approved list.
Shame she never used any of them.
The rat is cornered. She looked scared yesterday.
I had a rat cornered once.
Threw a claw hammer at it and broke it's back.
The sonafabitch came right at me on his front legs,
dragging the rest behind him.
Scared the shit outta me.
A cornered rat can be dangerous.
Open source software.
So she could enjoy her bath a bit more watching the funny LEDs blinking on the server's front panel. Even a mega-corrupt Monsanto-paid-by cunt needs some fun once in a while.
Shame it didn't fall in with her...
au contraire
the Ruskies would never look in the bathroom closet...it was high clever...
To be fair to Hillary, there just wasn't enough room in her other closet for her and the servers. :-O
The other closets were too full of skeletons.
Almost time to panic.
Funny how these large companies always seem to be able to pick the top of the market to go public. back in 2007 it was private equity who went public right at the top and raised maximum cash, now it's commodity companies. It's almost as if the know something.
It's always the "smartest" guys in the room!!!
That's good.
If you are the smartest guy in the room, the last thing you would do is advertise that fact.
Well, it is Ivan Glasenberg....tribemember.
Most silver comes from other mining, keep crashing those other metals and dry up the silver supply...Please.
I especially like this quote from the article, "...is massively levered to how China's economy dies"
Damn clever (erroneous?) word play. Make your bets, folks, on how it dies, toxic meltdown, financial failure, civil war, starvation, step right up, place your bets.
Tianjin had rain last night...
Back to the 30's is my bet... no jobs no money Hoover cities
.
Copper as money is a wonderful thing: my roll of fifty (50) U.S. one cent coins is still worth half a buck, 50% interest on a dollar!
There is very little copper in your pennies. It is 97.5% zinc with a thin copper coating. At 2.5 grams per penny, there is only .0625 g of Cu.
Now at the current Zn price of 80.8 c/lb and Cu price of 2.269 $/lb, the metal value of the penny is just about 0.75 cents. Since you can spend it for 1 cent, you are reaping a 33% return on the value of the penny. Just think of the return on a $100 dollar bill!
Per coinflation.com...
1909-1982 Cent (95% copper) *$0.01 $0.0151073
151.07% 1946-2014 Nickel
$0.05 $0.0317078
63.41% 1982-2014 Cent (97.5% zinc) *
$0.01 $0.0046184
46.18%
Gold bars in Tianjin: 97% tungsten.
My cents are the old dark brown, high copper variety, so I am "all set".
I always monitor the dates of coins I get in change and do a mini-historgram on the date distribution. If there are older coins the change, then that means folks are tapping their piggy banks and putting stored, older change back into circulation. This means times are tough. Archeaologist use a similar analysis to determine economic conditions at the time a hoard of coins was buried, based on the age distribution and condition of the discovered coins.
I'm just obeying Gresham's Law, seeing that bad zinc money cent drive the good copper money cent out of circulation. Coinage metals were sky-high in 1981 and that's when US.Gov chose to go with a copper-washed zinc cent, proving that the purchasing power of the dollar was going to go "way low".
I am trying to figure out how long the next 97% debasement of the dollar will take. Officially, the buck is now off some 38% since 2000 A.D., so it won't be long now...
And who will mine those mountains of debt if they all go bankrupt??!!
rumor has it LTCM & MET, thru Walmart customerzation, want up to the plate sarc off
there will always be contagion and it will hurt
it is written
Longs are getting creamed today, they were looking for the FED happy happy joy joy minutes, which are meaningless drivel as of the last 7 years.
And then the sharks circled and went for the kill....
soros buys peabody
I beg your pardon...
No...no...not you...
You are priceless!
He could not afford to buy you, even if he tried! ;)
Is there a silver lining to all this...why yes..buy some silver...
Commodity carnage is bullish for US stocks just because!
I ain't buying nuthin' no matter how cheap.
I've had enough of this bullshit.
...Let it all die on the vine.
Another rock star CEO bites the dust. Go back a year or more and there was gushing article after gushing article on this guy Glasenberg.
One of the best CEO's in the UK, Lord Wolfson of Next, is hardly ever seen or heard. He obviously knows his financial history. Keep an eye out for him though because you never know if he'll eventually fall to vanity and media fawning, if he does, that's the time to short the high flying Next stock. Almost never fail these sorts of trades.
OT
If Bitcoin took a huge shit yesterday and crashed over 15% in the forest, and nobody was around to hear it (not even ZH apparently), did it make a sound?
http://www.goldseek.com/quotes/charts/bitcoin/bitcoin5day.php
BTC has dropped from $266 on Sunday to $233 today. Who gives a fuck. It's only a USD$200 investment loss for me.
The topic of China slowing down has been elaborated on Zerohedge and elsewhere for years. Yet some people can always fake innocence by 'Caught surprised'.
We are all conspiracy nuts, or hadn't you heard.
But you'd be very surprised if you knew who comments here behind avatars.
Probably more surprised than seeing who's on that Ashley Madison list - tho I bet there's a lot of overlap...
I am surprised I still comment on this site. This place is now mostly a limited hangout... which is now what I mostly do.
2007 re: CMOs. CNBC at the time. "No one saw it coming". And now even Cramer is sounding a bit bearish as he was recommending stocks last go round at the absolute peak. I use CNBS as entertainment TV.
Glencore blamed tough trading conditions, particularly in aluminum and nickel, as well as coal markets. A slowdown in Chinese economic growth caught the company by surprise, it said, restricting access to credit there and softening demand. All that squeezed trading profits...
boo frickedy hoo [/dr. evil]
Read "The Boo Hoo Bible".
Wasn’t this an old Marc Rich company?
Didn’t the IPO create 6 or 7 multi-billionaires?
Isn’t this one of the crookedest companies in the world?
Just shows that if you IPO a cesspool the stockholders get flushed and the “floaters” get flush.
The stock market is sort of a reverse toilet!!
But but but, Glencore was Tony Blair's darling child, as he promoted the tie up with Xstrata...playing as middle man.
When middle men run off with the lolly whatever happens to bride and groom!
Doom porn!
If there's one cunt I really want to string up a lampost with piano wire that individual would be Tony Blair
If Manhattan co-ops and condos ever get classified as "commodities," expect their prices to plummet.
Napalm
uwti, historic lows, under a frn, er buck for those low info types or nubees, when will reverse split take it to $5..i hear saudi are going to give oil away for 50 cents a barrel next year..cause we are at peak oil..can't fix stupid
We are at peak humanity.
Stupid will be fixed.
They see copper as fundamentally in better shape? It is without doubt the most overpriced commodity out there. In needs to drop by 80%
Best thing about this story which ZH forgot to mention CEO Glasenberg is still cashing in 60 million. His net worth is estimated to be a mere 5 to 6 billion I'm sure there's room for more. And writing a loss, well that was a long time ago when it actually meant you had to scale back on your own salary, no if he scales back on anything it will be on employee numbers!
Glasenberg blames "speculators." Methinks this is a case of the pot calling the kettle black.
It will be interesting to see if they still give Hillary money.
After all, Bill pardoned Marc Rich (prior to Glencore acquisition) on his last day in office. Of course, Marc has passed on, too.
The well went dry and everbody up and left.
Noble ? Art Deco Wallpaper or Antiques. Serious Collectors can still wait.
Glen whore keeps all the Jewce. That's where all the money stay. In the Jewce!
One cannot say the Glen Whores aren't clever traders....after all they bought Xstrata with their IPO proceeds (stock) , kept the cash - then they didn't leave any earnings in the company (prolly front ran client orders and used them to hedge their own personal accounts). Folks- that's legal in commodity world. It's illegal to front-run in the U.S. Stock market according to the SEC.... But we're all aware here on ZH that the SEC is captured--- just like the commodities board - CFTC.