Glencore spurt masks turmoil By Rupert Steiner
MINING and commodities giant Glencore might have scaled dizzy heights to be among the top of the leader board of Britain’s biggest firms, but its 2.2pc share spurt masks a deeper problem.
Investors should ignore its temporary boost from yesterday’s spot iron ore prices.
There was a weekly gain of almost 5pc, in the metal, to its highest level since July which lifted all the miners, which were the top risers of the day.
Glencore was up 0.9p to 133.8p, rival Anglo American closed up 1.4p to 718.4p, while Rio Tinto increased 18p to 2383p. Antofagasta rose 3p to 607.5p.
However, the long-term weakening of commodity prices, such as copper, oil and gas, is more meaningful to future growth at Glencore.
Such concerns spooked credit rating agency Moody’s which downgraded the mining giant to negative despite attempts made to prop up its position.
Earlier this week the Swiss-based firm caved in to shareholder pressure to bolster its financial position with a £6.7bn rescue operation to stave off the effects of four years of falling commodity prices.
It announced a £1.6bn equity issue, further cost-cutting and the suspension of its dividend to slash its debt pile by a third by next year. But this was not enough to soothe Moody’s concerns.
It said: ‘ Notwithstanding the company’s broad capabilities to take strengthening measures, Moody’s has changed the outlook to negative to reflect the scope for a prolonged difficult market that may cause a slower recovery.’
It is particularly concerned about copper prices declining to below $2.2/lb on a prolonged basis from its copper price assumption of $2.35/lb for 2016. Last month Moody’s revised downwards its forecast for economic growth in the G20 economies, due to a more marked slowdown in China and the negative effects from low commodity prices.
But it was weak UK construction data for July, and the Big Four grocers that dragged down the FTSE 100 index of leading shares which closed down 38.05 points to 6117.76.
Germany’s Dax and France’s Cac 40 were down by about 1pc.
Sterling was a cent lower against the euro at 1.36, but was little changed against the dollar at 1.54.
Investors digesting the poor interim update from supermarket group Morrisons sent the shares down 3.3pc or 5.7p to 165.2p. Earlier in the week it announced the closure of 11 stores and profit almost halved, along with the impact discounters Aldi and Lidl are having on the established players, had a domino effect. Rival Tesco was down 4.2p to 185.35p while Sainsbury’s fell 5.5p to 233.4p.
The housebuilders were also affected by a surprise dip in construction in July. This reversed a bounce seen in June, after the biggest annual fall in house-building in more than two years.
Construction output fell by 1pc on the month, flying in the face of economists’ forecasts of a 0.5pc lift after an unrevised 0.9pc rise in June.
The root cause was an underlying fall in the amount of new housing being built, which dropped by 2.5pc – the first decline since March 2013. Taylor Wimpey fell 1.7p to 200.4p, as did British Land, down 14p to 812p.
In the pubs sector, Wetherspoon’s suffered a post-summer hangover with profits falling a quarter causing the shares to fall 4p to 716p. This lit the touch paper for another rant by chairman and founder Tim Martin about tax woes and the impact of the living wage on costs.
Vodafone fell 3.15p to 223.95p and BT dropped 9.45p to 422.65p in sympathy with Nordic rivals who saw their merger scotched by the EU over competition concerns. The wider London market was close to its opening level as uncertainty about whether America’s Federal Reserve will lift rates next week, took its toll.
In probably the most hotly anticipated piece of economic news in years, traders on both sides of the pond will be want to know if the loose monetary policy, designed to help lift the economy out of recession, will remain and continue to prop up shares.
B&Q owner Kingfisher, which delivers its interim results on Tuesday, benefited from a broker upgrade and was among the biggest risers on the FTSE 100, up 1.39pc to 365.3p.
The others were BAE Systems up 1.92pc at 451.7p, Hikma Pharmaceuticals up 1.69pc at 2409p, and Coca-Cola HBC up 1.2pc at 1344p.
Apart from the grocers the biggest fallers were Inmarsat down 26p, or 2.48pc, at 1022p, and Primark owner Associated British Foods down 60p, or 1.91pc, to 3086p.
÷ VICTORIA, which manufacturers, supplies and distributes flooring, jumped nearly 12pc to 1390p after acquiring rival Interfloor which specialises in carpet underlay. The deal, worth £65m, saw broker Cantor Fitzgerald place around 2.5m shares at 25p which raised £30.8m to fund the cash due to the sellers. Cantor has placed a further 402,633 shares on behalf of Victoria to raise a further £4.95m to part fund the acquisition. In a trading update, the firm said the underlying business continued to perform strongly.