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Glencore interim trading profit seen beating full-year guidance at $3.2bn

17th June 2022

By: Marleny Arnoldi

Deputy Editor Online

     

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Diversified miner and commodities trader Glencore said on Friday that its marketing division’s interim earnings before interest and taxes (Ebit) will exceed $3.2-billion, which is the top end of its full-year guidance.

The company’s full-year adjusted Ebit guidance range is between $2.2-billion and $3.2-billion.

Glencore said its marketing business had successfully navigated the "extraordinary global challenges" faced during the six months, and continued to be a source of reliable commodity supply to customers.

Against an elevated risk backdrop, the marketing segment’s financial performance continued to be supported by periods of heightened to extreme levels of market volatility, supply disruption and tight physical market conditions, particularly relating to global energy markets.

“Clearly the marketing business has done well in this heightened period of volatility, although they expect more normal conditions for the second half,” RBC Capital markets analyst Tyler Broda said.

Unprecedented dislocation in energy markets in the year-to-date has resulted, at times, in record pricing differentials between the various coal benchmarks and quality categories.

Glencore’s industrial coal portfolio produces various quality specifications in three countries, destined primarily for seaborne thermal markets, but also for steel and domestic consumption.

Relative to the Newcastle thermal coal pricing benchmark, the coal portfolio mix adjustment guidance has increased to reflect these larger differentials and portfolio composition.

The company explains that its coal portfolio mix adjustment guidance is used to calculate an overall realised price for the group’s coal portfolio as a deduction against the Newcastle thermal coal price.

The full-year portfolio mix adjustment guidance of $32.8/t, which the company stated in February, is expected to increase to a range of between $82/t and $86/t for the first half of 2022, based on an assumed benchmark Newcastle thermal coal price of $318/t over the period.

In line with the higher coal prices, government royalties have increased significantly relevant to the February guidance, which, together with higher input costs such as diesel, explosives, logistics and electricity, are expected to result in an increased average free-on-board (FOB) thermal unit cost for the half-year to between $75/t and $78/t.

The FOB thermal unit cost guidance was originally set at $59.3/t for 2022.

RBC Capital Markets commented that the skews in various coal prices in various regions had been swung by the Ukraine war, meaning that there had been a  much higher gap between region prices than normal.

“We had expected some of this at $63/t in the first half of the year, however, Glencore has guided a discount to benchmark of between $82/t and 86/t. Additionally, higher royalties and cost inflation will see costs at between $75/t and 78/t, which is slightly better than our forecast. This creates a net negative of $18.50/t,”  Broda said.

Glencore is expected to produce 58-million tonnes of thermal coal this year, which should generate just under $8-million of earnings before interest, taxes, depreciation and amortisation.

“We continue to rate Glencore as our only large-cap outperform recommended stock,” said Broda.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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