Cobalt's star fades for Glencore traders as customers renege

From riding high on cobalt’s boom, Glencore Plc traders are feeling the heat as falling prices and reneged contracts put a dent in profit.

The world’s largest commodities merchant on Monday downgraded its full-year earnings target for the trading division to $2.6 billion to $2.8 billion, down from an earlier estimate of $2.7 billion to $3.2 billion.

Some cobalt buyers in China reneged on contracts after seeing prices plunge, forcing the company to renegotiate the commercial terms of the deals, Glencore Chief Executive Officer Ivan Glasenberg told reporters.Benchmark cobalt prices have dropped more than 25% since a peak in April.

Like rival miner Rio Tinto Group, Glencore also lost money on certain long-term alumina deals this year. Its exposure to price moves in the contracts should be minimal in 2019, the company told analysts and investors. But for its cobalt traders, there’s a risk that this year’s poor performance will persist if in-house inventories continue to stack up and prices remain under pressure, Chief Financial Officer Steve Kalmin signaled on Monday’s calls.

Last month, Glencore’s Katanga Mining Ltd. unit suspended sales of cobalt due to concerns about uranium contamination.

Even once shipments resume, the company may be left exposed if prices fall between the time of production and sale, due to the lack of hedging tools in the cobalt market, Kalmin said.

"I’m just flagging it now because it could be a feature as we go through particularly the next couple of years on cobalt, where there may be some potential oversupply,” he said.

(By Mark Burton and Jack Farchy)