Glencore’s intelligent profit-boosting coal mine closures

That’s due to its earlier historical past as a commodities buying and selling home, earlier than the merger with Xstrata gave it possession of a significant international useful resource base. Its mixture of mining, advertising and buying and selling operations is exclusive and offers it distinctive understanding of its markets and distinctive alternatives to take advantage of its market intelligence.

On the coronary heart of its coal technique is the market affect offered by its personal and third-party manufacturing and, specifically, its dominance of the premium coal that’s the benchmark for pricing within the wider market.

By pursuing a depletion technique fairly than merely promoting its mines to patrons that will hold producing and be motivated to extend manufacturing,Glencore has retained its maintain available on the market and its pricing energy.

There are few new coal mines being developed anyplace on the planet, and the move of funding into enlargement of present mines has dwindled below the strain from the worldwide push – together with by Glencore’s personal shareholders – to cut back carbon emissions.

The seemingly everlasting discount in Russian coal exports from the response to its invasion of Ukraine will solely add to the strain on the availability facet.

By pursuing a depletion technique fairly than merely promoting its mines to patrons that will hold producing and be motivated to extend manufacturing, as lots of its friends have finished, Glencore has retained its maintain available on the market and its pricing energy.

Within the absence of (very unlikely) important new mines, the costs will stay excessive and may even climb increased, at the same time as Glencore withdraws quantity from the market. Demand for coal is unlikely to peak earlier than the tip of this decade, if then, and can stay strong for a number of a long time to return.

That may allow Nagle, and his successor, to finesse the connection between Glencore’s declining volumes and costs to maximise earnings.

Copper ambitions

Nagle offered a distinct perception into the technique the corporate is pursuing in coal by describing Glencore’s copper ambitions within the briefing.

As with everybody else within the trade, Glencore expects a world structural scarcity of copper in future as the expansion in renewable power applied sciences and electrical automobile fleets continues to surge. There may be quite a lot of evaluation predicting substantial shortfalls in copper manufacturing relative to the hovering demand.

Loading

The bullish outlook for the metallic has seen a scramble by miners to place themselves through elevated exploration and acquisitions, with BHP’s deliberate $9.6 billion takeover of Oz Minerals pushed largely by a want to place its foot on extra copper reserves.

So far, nevertheless, the copper value hasn’t mirrored the swelling forecasts on the metallic’s future. It’s greater than 20 per cent beneath its peak earlier this yr.

Nagle has a doubtlessly giant new mine inside his portfolio, the $US5.6 billion El Pachón mine in Argentina, in addition to plenty of alternatives to broaden the corporate’s present mines.

El Pachón, nevertheless, could be developed as “the final cab off the rank,” he mentioned.

“When the value is there, when the world is screaming for the copper that it wants, that’s after we will deliver on the brand new provide.”

That’s one other illustration of Glencore’s wider philosophy of maximising worth over quantity, and its warning about greenfield merchandise that add quantity in response to excessive costs and flatten or decrease the value within the course of. Glencore will broaden its present mines, if the demand warrants it, earlier than it significantly considers bringing El Pachón into the market.

If the long-term outlook for copper is promising, then the long-term way forward for coal seems to be dire. Glencore is demonstrating, nevertheless, that it’s attainable to maximise earnings from the fossil gasoline regardless.

The Enterprise Briefing e-newsletter delivers main tales, unique protection and skilled opinion. Signal as much as get it each weekday morning.