Glencore likely to slash spending on coal, oil — HSBC
Global miner and commodities trader Glencore (LON:GLEN) may have to slash planned spending on coal and oil projects this year as prices for both commodities have reached record lows, HSBC analyst Ash Lazenby wrote in a note Tuesday.
Glencore, the world’s biggest exporter of thermal coal, has budgeted $3 billion to invest on fossil fuel and oil projects and operations through to the end of 2016. However, Lazenby believes that Ivan Glasenberg’s firm will likely reduce that amount, Bloomberg reports.
“We see scope for material cuts to this guidance should commodity prices remain depressed,” Lazenby wrote in the report. The company may also release as much as $9 billion of capital in its marketing unit “which buffers the balance sheet,” he said. It usually employs about $20 billion of capital, he said.
Last year Glencore bought Africa-focused oil company Caracal Energy in a $1.35 billion deal that strengthened its position in Chad. Initially analyst said Glencore could take advantage of falling share prices in the oil sector to do further deals. However, as both commodities keep flirting with historical lows, Glasenberg may choose to go frugal.
Prices of thermal coal, used to generate electricity, and metallurgical coal, a key ingredient in steel, have tumbled more than half since 2011 on supply additions and slowing demand in China, the top consumer of the fossil fuel.
A supply glut has seen the price of Brent crude, the international oil benchmark, drop 50% from the middle of June to five-year lows. With OPEC insistent that it won’t curb crude output, and U.S. production rising to its fastest weekly pace in more than 30 years, oil markets may be in line for similar prolonged pain.
U.S. benchmark West Texas intermediate fetched about $47 a barrel in trading Monday; in June, WTI topped $100. Brent retreated $1.33 to settle at $48.84 a barrel. U.S. markets were closed for Martin Luther King Jr. Day.