Glencore’s Trading Profit at Risk From Rout in Commodities – by Jesse Riseborough and Javier Blas (Bloomberg News – August 10, 2015)

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Glencore Plc’s trading business is at risk of missing its earnings target for this year, if analyst estimates and historical precedent are any guide.

The division may report adjusted earnings before interest and tax of $1.28 billion for the first six months of the year, according to the average estimate of nine analysts surveyed by Bloomberg News. That’s less than half the company’s full-year target of $2.7 billion to $3.7 billion. For the past three years, second-half trading profit has never beat first-half.

The trading operation, which handles everything from cotton to copper to oil, is under pressure as a glut of global metal supply reduces the premiums that Glencore can charge to clients.

Agriculture traders have also struggled, with Cargill Inc. reporting its first quarterly loss since 2001 and Bunge Ltd. missing analysts’ estimates. Glencore shares hit a record low last week and have slumped 62 percent since 2011.

“While everyone has been quick to call the end of the commodities super-cycle, the more important shift for Glencore is the end of the era of super-profits in trading,” said Ben Davis, analyst at Liberum Capital Ltd. in London. “What made Glencore rich in the past is unlikely to happen again.”

A spokesman for Glencore declined to comment.

Speaking to analysts in March after the company reported 2014 earnings, CEO Ivan Glasenberg said he was confident that the trading division would reach its profit target “no matter what commodity prices are doing.” It boosted the estimate last year after taking over miner Xstrata Plc and Canadian grain trader Viterra Inc.

Trading Profits

Liberum’s Davis said Glencore will miss its trading profit target this year, predicting full-year adjusted Ebit of $2.3 billion. Profit in the first half will be $1.1 billion because of weaker Chinese metals demand, he said.

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