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Swiss mining and trading group Glencore has reported a plunge in profits as the surge in commodity prices that followed the invasion of Ukraine eases.
The FTSE 100 group said on Tuesday that its earnings before interest, taxes, depreciation and amortisation fell 50 per cent to $9.4bn on $107bn of revenues in the first six months of the year, driven in part by coal prices coming off their highs.
The company’s shares fell 4 per cent to 439.05p by late morning in London after Glencore fell short of analyst profit forecasts.
A resurgence in coal prices, which started before Russia’s invasion of Ukraine, helped send Glencore’s profits to a record last year, but they also drew scrutiny over the company’s plans for the heavily polluting business.
Alongside its first-half results, Glencore said it would increase its dividend by $1bn and buy back another $1.2bn of shares in a move that takes the amount it has pledged to return this year to $9.3bn.
The $2.2bn of additional shareholder returns was far below that of the previous year as the company revealed it was holding back $2bn of cash for a full or partial acquisition of Canadian rival Teck Resources.
Glencore initially proposed in April to buy all of Teck, including a portfolio of copper and zinc mines in the Americas, and then split the combined company into a coal behemoth and a metals producer.
However, the Switzerland-based company said in June it was willing to just buy Teck’s coal division for cash and spin off a coal company in New York.
The acquisition plans come as Glencore’s coal business comes under growing scrutiny, with shareholders demanding to know how plans for its highly profitable coal business are compatible with climate targets.
Glencore’s profit decline follows similar drops in profitability at other mining groups such as Rio Tinto and Anglo American as China’s faltering economic rebound hits sentiment.
The fall in coal prices, which have more than halved from $277 a tonne last year to $129 for products out of South Africa, was mirrored by drops for oil, gas and other industrial metals as inflationary pressures stung the global economy.
Glencore was also hit by the easing of commodity market volatility, which its trading teams thrive on, while its mines were struck by cost inflation.
But the results were still one of its best in the first six months of the year, and Glencore chief executive Gary Nagle signalled reasons for optimism about demand in the months ahead.
“Moderating inflation and supportive government policy in China across key sectors are bringing a more positive macroeconomic backdrop in the second half of 2023,” he said.
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