Glencore shrinking its $18 bln commodity inventory mountain – by Sarah McFarlane and Dmitry Zhdannikov (Reuter U.S. – October 29, 2015)

http://www.reuters.com/

LONDON – Oct 29 Commodities mining and trading giant Glencore is reducing its $18 billion inventory pile, industry sources say, a move ratings agencies say could help assuage concerns about its balance sheet.

The biggest player in the secretive commodities trading industry to hold a public share listing that requires it to disclose its accounts, Glencore has been battered by the global downturn in commodities prices.

Worries about its $30 billion debt burden saw its share price lose nearly two thirds if its value so far this year. The firm has pledged to reduce its debt by $10 billion by suspending dividends, reducing investments and selling some assets in order to protect its investment grade debt rating.

Sources close to the company say it is also reducing its vast trading inventory, driven in part by the winding up of “contango” market conditions, under which long-dated futures contracts were priced higher than spot prices, encouraging traders to store material to resell it at a profit later.

“If you look at where commodities prices are today and how the market conditions changed in the past six months – it is fair to say that the only way for inventories is to go down,” a source close to Glencore said.

That could help appease ratings agencies such as Moody’s and S&P, which both rate Glencore just two notches above junk, with a negative outlook that means its investment grade rating is in jeopardy.

“Sometimes the balance sheet is just more important than the contango play,” said the source close to the company.

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