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Glencore cuts guidance as bull market profits peak

This year’s earnings – as massive as they will be – will likely be the high point of the commodity cycle and come down from next year onwards
October 28, 2022
  • Massive first-half profits and forecasts indicate strong full-year numbers
  • But production difficulties and falling metals prices will take a chunk out of the bottom-line performance

Glencore (GLEN) will post massive profits this year even with the tightened macroeconomic situation and the impact of the war in Ukraine, strikes and wild weather on metals production. 

The mining and trading giant is forecast to triple its cash profit compared with last year, to over $30bn (£26bn), despite dropping overall zinc, nickel and coal production guidance for 2022 in its third-quarter update last week. This comes at the same time as prices for base metals have fallen because of slowing global industrial demand, so this year’s earnings will likely be the high point of the commodity cycle and come down from next year.  

So far this year, copper and zinc prices are each down more than 15 per cent, while nickel is trading is flat, as Russian supply has come out of the market. 

Glencore also said its marketing division, which trades commodities, would have “significantly reduced” earnings compared with the first half, in which it brought in an adjusted operating profit of $3.7bn. Chief executive Gary Nagle said the second-half operating profit for the division would be around $1.6bn. 

The specific issues that knocked production varied between operations – copper was down 14 per cent in the September quarter because the Katanga operation in the Democratic Republic of Congo had issues relating to “land access, geotechnical and processing constraints”. Zinc and lead came down in Kazakhstan because of “significant supply chain issues”, Nagle said. Zinc output was down 18 per cent and lead 21 per cent on a year-to-date basis. 

The miner is also still in the midst of a bribery and corruption case, even after handing over $1bn in fines at US and UK authorities. Cases continue in other jurisdictions while a London court is preparing to hand down a sentence for the local corporate entity, expected next week. 

At the half-way point of the year Glencore was very keen to give shareholders a slice of the action, with a special payout and share buyback programme. It’s unlikely the largesse will continue long into 2023. Hold. 

Last IC View: Hold, 462p, 4 Aug 2022