- Political strife and weather hit production volumes
- Coal prices surge through 2023 and remain favourable
Glencore (GLEN) has beaten production forecasts for the last quarter of 2022, and reiterated 2023 guidance despite some headwinds at its mines. That's probably a decent outcome given industry-wide issues. Across the globe, copper producers have struggled in the face of weather disruption, industrial unrest, and an ongoing decline in ore grades. That last factor is doubly significant given the metal’s centrality to energy transition policies.
Naturally, Glencore gave no clues as to how its marketing activities played out through the final quarter of 2022 in a trading update released on Wednesday, although the material impact of these activities is likely to be heightened by price volatility through the year.
Various community protests did hit key energy commodities production, however, with coal output in Colombia down on a like-for-like basis because of an "extended community blockade" at the Cerrejon group of mines. On an absolute basis coal output is signficantly higher than 2021, however, after Glencore bought out Anglo American (AAL) and BHP's (BHP) one-third stakes in the asset.
The steep increase in energy prices which underpinned adjusted trading profits from marketing of $3.7bn (£3bn) at the half-year mark, more than double that of the corresponding period a year earlier, while coal sales will likely drive the company to a record cash profit in 2022. The consensus forecast for Ebitda is $27.6bn, almost double 2021 and triple the 2019 and 2020 cash profit figures.
Pricing conditions for coal remained favourable through the year, spurred by floods along Australia’s east coast and energy shortfalls brought about by the war in Ukraine. Benchmark prices for supplies from South Africa's Richards Bay Coal Terminal and Australia's Newcastle port increased by 117 and 163 per cent, respectively.
Analysts from UBS predict that coal prices should continue to climb in 2023 as economic activity picks up in China and other emerging markets. They note that imbalances in energy markets are becoming deep-seated due to underinvestment in upstream capacity. Glencore was an outlier in the mining space when it committed to continuing thermal coal production, but has set a cap on output, which will also help prices unless demand swiftly drops.
Overall production figures were in line with revised guidance.
The group saw improving production volumes across most of its key commodities through the last quarter of 2022 even though copper and zinc volumes declined through the year overall. Output of the former metal was down by 12 per cent due to the sale of Ernest Henry at the start of the year, ongoing geotechnical constraints at the Katanga site, and a reduced contribution from Mount Isa. Glencore was forced to suspend operations at its Antapaccay copper mine in Peru last month after protesters attacked the site, as social unrest worsens in the country.
