Morning Note: Market News and Results from Glencore.

Market News

Marco Rubio told European allies the US will keep sanctions on Russia in place at least until a deal to end the Ukraine conflict is reached. President Trump said he’ll probably meet Vladimir Putin to discuss a settlement before the end of February. France has convened a second meeting on Ukraine.

Trump plans to impose tariffs on Autos, Chips, and Pharma imports of around 25% with an announcement as early as 2 April widening his trade war. It’s unclear if vehicles made under a free trade agreement with Canada and Mexico would be exempt.

A gauge of dollar strength and Treasuries – the 10-year yields 4.55% – were little changed ahead of the release of minutes of the Federal Reserve’s last meeting. Bloomberg Economics expects the minutes to show the FOMC probably further discussed the concerns created by Trump’s proposed policy changes, with a bias toward upside inflation risks. Gold rose to $2,930 an ounce.

The S&P 500 (+0.2%) moved to an all-time high, driven by a rally in chipmakers, despite a slide in most big techs. Nasdaq (+0.1%) also nudged higher. Medtronic shares close down 7.3% driven by weak sales in its surgical unit. In Asia this morning, stocks pulled back – Nikkei 225 (-0.3%); Hang Seng (-0.5%) – after a five-day rally that pushed a regional gauge into overbought territory. China’s decline in new-home prices eased for a fifth month in January, offering hope for an end to the slump.

The FTSE 100 is currently little changed at 8,746. BP is said to be weighing sale of its lubricants unit with Elliott pushing for the move. Such a deal may be worth about $10bn. The pound wavered – $1.2620 and €1.2070 – after a mixed set of UK inflation numbers. CPI inflation rose 3.0% y/y in January (vs. 2.8% expected, while the Core CPI came in at 3.7% y/y, as expected. The services reading was a touch lower than expected.

Source: Bloomberg

Company News

Glencore has this morning released 2024 full-year results which were slightly below market expectations. Despite a good operational performance, profitability was impacted by weak commodity prices. The group announced $2.2bn of shareholder returns with potentially more to come at the time of the first-half results. In response, the shares are down 5% in early trading.

Glencore is a vertically integrated commodities business, with a strong position in the production of copper, coal, nickel, zinc, cobalt, and precious metals, and a unique marketing business which markets and distributes commodities sourced from internal production and third-party producers to industrial consumers. The group’s strategy is to own large-scale, long-life, low-cost Tier 1 assets.

Glencore is a leading producer of metals that are used in low-carbon and carbon-neutral technologies, such as electric vehicles and renewable energy, the outlook for which is underpinned by robust demand and persistent long-term supply challenges. The IEA estimates that by 2050 the metals requirement for clean energy technologies will amount to 2.1x-3.4x more copper than in 2020, 10.8x-30.1x more nickel, and 9.9x-32.9x more cobalt. Given the industry’s supply constraints, the group is also increasing its investment in recycling and circularity.

Glencore’s acquisition of a 77% interest in Teck’s steelmaking coal business (EVR) for $7bn in cash completed last July. The remaining stake is owned by Nippon Steel (20%) and POSCO (3%). The assets complement Glencore’s existing thermal and steelmaking coal production located in Australia, Colombia, and South Africa. The company believes global population growth, increased urbanisation, and a growing middle class should continue to drive long-term demand for steel and the steelmaking coal required to produce it.

Following consultation with its shareholders, Glencore has decided to retain its coal and carbon steel materials business rather than demerge it. The company believes the cash generative capacity of the business significantly enhances the quality of the overall portfolio, by commodity and geography, and broadens the company’s ability to fund its strong portfolio of copper growth options as well as accelerate shareholder returns. Management sees potential upside through synergies as the EVR assets are integrated into the portfolio. The company will continue to oversee the responsible decline of its thermal coal operations in line with its current targets.

Now to today’s results. Against the backdrop of lower average prices for many key commodities, adjusted profit (EBITDA) fell by 16% to $14.4bn, a touch below the market forecast of $14.6bn.

The Industrial assets’ EBITDA fell by 20% to $10.6bn, primarily driven by lower energy coal prices, partially offset by the addition of EVR’s steelmaking coal business and higher earnings in the zinc business, primarily via its exposure to higher gold prices. Full-year production volumes were delivered within the group’s guidance ranges, reflecting stronger second-half performances across key commodities. Adjusted EBITDA mining margins were 28% in the metals operations and 36% in energy and steelmaking coal.

Glencore’s marketing business exploits arbitrage opportunities that continuously emerge in commodity markets. It provides a good hedge against commodity price volatility and finances the $1bn base dividend (see below), although clearly there is always a risk of potential losses because of that volatility. In 2024, the unit generated adjusted profit (EBIT) of $3.2bn, down 8%, but at the top-end of the long-term guidance range of $2.2bn-$3.2bn.

Viterra is the group’s agricultural commodity trader, in which it has a 49.5% stake. In 2023, Glencore agreed to combine its interest in a cash and shares transaction with industry rival Bunge. The merger will create a diversified global agribusiness solutions company with significant synergy and re-rating potential. Under the terms of the agreement, Glencore will receive 32.8m Bunge shares (or 15% of the new company), currently worth c. $2.3bn, and $1bn in cash. The merger, which remains subject to regulatory approval, is expected to close in the coming months.

Capital expenditure was $6.7bn, with the company looking at greenfield mine developments, although these projects will only be approved when the market requires the commodity (and prices are higher) or when existing projects are completed.

Funds from operations rose by 11% to $10.5bn. Net borrowing fell rose from $4.9bn to $11.2bn, driven by the Teck EVR acquisition. Gearing is a comfortable 0.8x net debt to EBITDA, leaving significant financial headroom.

Following the decision to retain the coal and carbon steel materials business, the group’s net debt cap shaping its shareholder returns framework was reset at $10bn. When net debt falls below this level (after the base distribution), cash will be periodically returned to shareholders via special cash distributions and/or share buybacks as appropriate.

The dividend policy is to pay a fixed $1bn base distribution from the Marketing business, reflecting the resilience, predictability, and stability of the unit’s cash flows, plus a minimum payout of 25% of Industrial free cash flow. In 2024, the company made $1.9bn of shareholder returns.

For 2025, the company has announced $2.2bn ($0.182 per share) of shareholder returns, made up of a $0.10 per share ($1.2bn) base cash distribution, together with a ‘top-up’ buyback of $1.0bn ($0.082 per share). The top up returns will be affected by way of a buyback to be concluded before the release of the group’s H1 2025 results on 6 August, the date on which we the company plans to announce further shareholder returns.

Looking forward, the business is expected to be highly cash generative at current spot commodity prices – annualised free cash flow generation would be $4.8bn (9% FCF yield) from adjusted EBITDA of $15.3bn.

Overall, the company highlights that while there is increased uncertainty around the impacts of geopolitics in the shorter-term, Glencore remains of the view that, in certain commodities, the scale and pace of global mine project development will struggle to meet demand for the materials needed in the future. Glencore believes it is well placed to participate in bridging this gap, through the flexibility embedded in both its Marketing and Industrial businesses to respond to global needs.

Source: Bloomberg