Shares in commodity trading firms take another tumble, driving global stocks to their lowest in more than two years, as pressure built on raw materials prices and emerging markets.
CENTRAL QUEENSLAND, AUSTRALIA (GLENCORE) – Shares of Glencore halted their slide on Tuesday after losing around a third of their value on Monday, with several brokers saying worries over the commodities and mining company’s debt pile were overdone.
The stock was up 3.6 percent at 0713 GMT, at 71.10 pence, but remains down about 27 percent since Friday over concerns it is not doing enough to cut its debt to withstand a prolonged fall in global metals prices.
Michael Bell is a Global Market Strategist at JP Morgan.
“We think, actually, commodity prices have got further to fall from here, unfortunately, and that’s likely to put further pressure on commodity producers. We’ve seen a situation where during the commodity boom, companies invested a lot and that’s brought a lot of supply in to the market, and now with a weakening in demand, we’re seeing that cause problems for commodity prices. Particularly, we feel copper prices have a lot further to fall from here.” he said.
Chief executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut debt as worries mounted over the firm’s ability to protect its credit rating.
Michael Van Dulken is Head of Research at Accendo Markets.
“They’re trying to cut down this debt mountain, and the first step towards that, they’re looking to reduce it by about 10 billion. Unfortunately, the first step they went to was a share placement. Now, shareholders are unhappy with not being given first right of refusal for a rights issue, so really they’ve given themselves a black mark against their name there, so whatever they look to do next, needs to definitely appease shareholders who are already sitting in many cases on, probably, significant losses.” said Van Dulken.
China consumes nearly half the world’s copper.
Benchmark three-month copper on the London Metal Exchange was up 0.3 percent at $4,980 a tonne by 1015 GMT, having struck its weakest since late August at $4,915.50. The metal is not far off a six-year low of $4,855 hit in August.
Shanghai Futures Exchange copper fell 2.5 percent to 37,760 yuan ($5,935). Shanghai markets will close from Thursday for a week for the mid-autumn festival.
Indicating worsening sentiment, funds trading LME copper reduced their net “long” or buy position to 12,506 lots last Friday from 16,513 lots on Sept. 18, data showed.
“The fall in commodity prices is generally going to be good for developed market economies because it means that margins can improve for companies and also that especially the fall in oil prices is good for the consumers in developed market economies. Where it does hurt economies is in the emerging markets, especially those which have a large percentage of their exports from commodities. So countries like Russia, Brazil, are particularly exposed to this and we think there is further weakness ahead for them, perhaps.” Bell added.
Monday’s fall spread to the broader UK mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The FTSE 350 mining index sank to its lowest level since Dec. 2008.