International Partners Says Colossal Debt Drags Glencore Lower

2024-04-13 02:12:20 Industry

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International Partners: Anglo-Swiss mining giant Glencore sees stock recover after huge 27% selloff.
International Partners: Shares in Anglo-Swiss mining conglomerate Glencore have clawed back some of their value following a 27% plunge at the beginning of the week. The stock plunged to its lowest ever price hitting 68.6 pence ($1.03) in what was a dismal day for the commodity sector as a whole.

The continued fears over the future of China?s economy have seen prices for core metals like copper and iron ore plummet, exacerbated by the strength of the US dollar but Glencore?s woes lie in the colossal debt burden it shoulders.

Glencore has moved in recent weeks to begin addressing its debt by issuing a $2.5 billion share placement selling 1.3 billion new shares at ?1.25 ($1.89), selling off mining assets and suspending its shareholder dividend but the resulting respite has proven to be short-lived.

?We?ve looked closely at potentially taking positions in Glencore because our technical analysis suggests the stock is oversold and largely rooted in the worries over commodities and China but these panic conditions can go on for much longer than seems rational at the time,? said Clive Bernstein, European equities strategist at International Partners.

Glencore took on huge amounts of debt in order to expand production at a time when the Chinese economy still had a voracious appetite for raw materials but mines take a long time to construct so, by the time they were generating greater production, the Chinese economy had already slowed and demand for commodities had slumped.

?What?s more is that the high production is helping to depress commodity prices even further,? said Bernstein.

International Partners says that commodities could remain subdued for some time to come but warn that stimulus from global central banks could see prices rise again particularly as mines are mothballed in response to the supply glut.

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