Glencore’s outlook dims for raw materials

GLENCORE, the largest publicly traded commodities house, painted a weak outlook for raw materials prices this year, saying supply of iron ore, oil and food commodities would probably run above demand.

Chief executive Ivan Glasenberg said global economic growth – traditionally the main driver of commodities consumption – remained lacklustre.

“The gradual process of normalisation following the financial crisis has continued, but at a slower pace than many expected,” Glasenberg said in an earnings statement yesterday.

“Some of the most important legacies of the crisis continue to drag on, including those relating to Europe.”

Bearish

The views of Glencore are closely watched in the commodities market, as the company operates one of the largest trading operations in the world, spanning raw materials from copper to soya beans, oil and sugar.

The Switzerland-based company was particularly bearish about iron ore, saying the market for the steel making raw material was set to remain “subdued in 2015”.

Iron ore is key for the profitability of some of Glencore’s top rivals, including Rio Tinto, BHP Billiton and Anglo American.

Iron ore prices fell last week to $64.60 (R756.02) a ton, down 46 percent over the last year.

Glencore said it was expecting the period of low oil prices to continue, calling the adjustment after Opec decided to fight the rise of US shale production a “work in progress”.

Benchmark Brent oil prices have dropped about 47 percent over the last year to trade at $59.95 a barrel early yesterday.

The trading house said it also anticipated low prices for agricultural commodities due to relatively large harvests around the world.

“Barring significant crop issues, global markets are likely to remain relatively low priced and subdued,” it said.

Glencore said Brazil and Argentina, two of the world’s top agricultural exporters, might deliver record crops later this year.

The UN Food and Agriculture Organisation’s food index fell in January to a fouryear low, down 24 percent from a record high set in 2011 after crop failures tightened the market.

Despite the bearish nearterm outlook, Glencore was optimistic that the market would improve.

While Glasenberg, who owns 8.4 percent of the company, said there was “no shortage of bearishness towards commodities in financial markets”, the company anticipated a “tightening of supply conditions” during the year in response to investment cutbacks.

Glasenberg said the industrial metals markets, where the company was a miner as well as trader in commodities such as copper, zinc and lead, looked relatively strong. – Bloomberg