Sluggish demand for raw materials drags down Glencore profit by 25pc

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 5:41am

Glencore International, seeking to buy Xstrata in a US$33 billion all-share bid, said adjusted profit for last year fell 25 per cent as slowing global growth eroded demand for the raw materials it produces and trades.

Net income excluding significant items dropped to US$3.06 billion, the company said yesterday. Sales increased 15 per cent to US$214.4 billion while net debt climbed 19 per cent to US$15.4 billion.

Glencore joins the biggest mining companies - BHP Billiton, Rio Tinto and Anglo American - in reporting declining profits. The Standard & Poor's GSCI gauge of 24 raw materials rose 0.3 per cent last year, its worst year in four.

Goldman Sachs forecast raw materials would gain 1.1 per cent in 12 months, while Citigroup called an end to the commodities "super cycle" of rising demand in November last year.

"Despite the challenging environment faced by the mining industry, Glencore delivered organic growth in its industrial businesses, which complemented a robust performance in its marketing operations," chief executive Ivan Glasenberg said.

Net income attributable to shareholders fell 75 per cent to US$1 billion, Glencore said.

The firm declared a final dividend of 10.35 US cents a share.

Last week, the world's biggest publicly traded commodities supplier pushed back a deadline to complete its acquisition of Xstrata as it awaits a ruling from China on the transaction.

The takeover would add coal, nickel, copper and zinc mines to create the world's fourth-largest mining company.

Approval from China is the final hurdle to completing the acquisition. Glencore extended the deadline yesterday to April 16 from March 15.

Separately, Xstrata, 34 per cent owned by Glencore, reported a drop in adjusted net income to US$3.65 billion.

The combined firm would have sales of about US$250 billion this year, Sanford C. Bernstein analyst Paul Gait said.

It will get about 40 per cent of an estimated US$10.8 billion of earnings before interest and tax from its copper mining business this year, according to Macquarie analysts Jeff Largey, Alon Olsha and Daniel Lurch.

"A key focus for investors will be whether Glencore/Xstrata will increase targeted annual synergies or outline further cost-saving initiatives," the analysts wrote.

The group will have interests in about 35 coal mines in Colombia, Africa and Australia, and make up about 10 per cent of global seaborne exports of the fuel.

It will also be the world's third-biggest producer of mined copper, the largest zinc miner and the biggest exporter of coal burned by power stations.

The company will have about 11 per cent of the 13 million tonne global zinc market and about 40 per cent of the 1.9 million tonnes of the metal produced in Europe. It will employ 130,000 people.

Net income excluding exceptional items shrank 26 per cent to US$1.8 billion in the first half. At the time, Glasenberg said the company did not anticipate "any material improvement in overall market or economic conditions in the near term".