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Why Metals And Mining Giant Glencore Could Be Headed For A New All-Time High

Published 08/11/2021, 07:58 AM
Updated 07/09/2023, 06:31 AM

This article was written exclusively for Investing.com.

  • Bullish relay race in commodities may be in the early laps
  • Glencore: leading producer and merchant in the asset class
  • New management
  • Settling past sins
  • Heading for new record high as commodity prices accelerate

Over the past two weeks, copper and base metals prices corrected lower and were sitting near the bottom end of the short-term trading range. Copper is the leading base metal that trades on the London Metals Exchange. Aluminum, nickel, lead, zinc, and tin prices tend to follow the red industrial metal.

Meanwhile, crude oil has also moved lower. On Aug. 9, the energy commodity reached a low of $65.15, only 14 cents above the $65.01, July 20 low. In the world of commodities, only one company is a leading producer and trader of a wide range of commodities, including metals, energy, and other raw materials.

Glencore (OTC:GLNCY) traces its roots back to Philipp Brothers, the world’s leading commodities company in the 1960s-1980s. Marc Rich, a rising star at the company, left Philipp Brothers in the 1970s to set up his own shop. That firm, Marc Rich and Company, became Glencore.

While Philipp Brothers went out of business because of the downturn in the commodities sector, Glencore thrived. The company purchased commodity assets worldwide, embarking on an M&A path that included merging with Xstrata, the Anglo-Swiss multinational mining company, in 2013.

After debt issues in early 2016, the company shed non-essential assets and emerged as a producing and merchant powerhouse. Glencore’s production capabilities keep the company on the cutting edge of market fundamentals, which feed their trading acumen. GLNCY shares have been trading in a bullish trend since the March 2020 lows.

Inflationary pressures look likely to continue to push the stock higher over the coming months as shares head for a challenge of the all-time peak from 2012.

Bullish relay race in commodities may just be in the early laps

Since the March-May 2020 lows, commodity prices have moved appreciably higher. In August 2020, gold reached an all-time high at $2063 per ounce. In May 2021, lumber, copper, and palladium prices soared to record levels. Grains rose to eight-year highs in 2021. Iron ore, steel, and coal prices have all moved to multi-year highs.

The tidal wave of central bank stimulus and tsunami of government stimulus created by the global pandemic planted turbocharged inflationary seeds that have been blooming all over the commodities asset class.

In 2008, the central bank and government monetary and fiscal stimulus caused commodity prices to move to multi-year and, in some cases, record highs by 2011-2012, in the wake of the global financial crisis. While the worldwide pandemic is a far different event, central banks and governments used the same tools to stabilize the global economy.

The only difference in 2020 and 2021 is the stimulus levels are far higher. We have already seen inflation rising. The most recent US consumer price index data revealed the highest inflation in three decades.

Commodity prices thrive in an inflationary environment, but bull markets rarely move in a straight line. Since raw materials tend to be highly volatile, corrections can be brutal.

Over the past weeks, we have seen selloffs in the asset class, which could make this the perfect time to consider adding GLNCY to your portfolio.

Glencore: leading asset class producer and merchant

Glencore is a commodities giant. The company’s website highlights the many tentacles it has in the global raw material markets.

Copper’s price dropped from a record high at nearly $4.90 per pound in May to around the $4.30 level as of Aug. 9. Copper Quarterly

Source: CQG

The quarterly chart, above, highlights copper’s ascent and its bullish trend that has taken the price higher over the past five consecutive quarters. A close above the $4.2975 level on Sept. 30 would mark the sixth straight quarterly gain. In 2020, GLNCY was the world’s-second leading copper-producing company, with 1.26 million tons of output.

In August 2021, the thermal coal price for delivery in Rotterdam hit a high of $146 per ton. Coal Monthly

Source: Barchart

The chart shows coal is at its highest level since 2008. GLNCY is one of the world’s leading producers and exporters of thermal and coking coal. Glencore’s fortunes are rising with copper, coal, and other commodity prices.

The company's most recent earnings report, released on Aug. 5, showed that Glencore’s adjusted earnings before interest, tax, depreciation, and amortization rose 79% to a record $8.7 billion during the first half of 2021. The company cut debt to $10.6 billion from $15.8 billion at the end of 2020 and will return $2.8 billion to shareholders, reinstating the dividend.

New management

Over the past years, Ivan Glasenberg steered Glencore through troubled waters over two decades as the company’s CEO. Glasenberg was Marc Rich’s protégé. He retired in July 2021, handing the reins to Gary Nagel.

The new CEO’s nickname is 'mini-Ivan' since he, like Glasenberg, are both accountants. Both also rose through the ranks and ran the company’s coal business. Thermal coal prices have substantially contributed to Glencore’s bottom line.

Meanwhile, this changing of the guard could go a long way toward clearing up a number of issues plaguing the company.

Settling past sins

For starters, Glencore has pledged to reach net-zero carbon emissions by 2050. Indeed, the new CEO’s compensation package is tied to ESG performance.

As well, the US Department of Justice, in coordination with UK and EU regulators, has been investigating the company over allegations of corruption at operations in the Democratic Republic of Congo, Venezuela, and Nigeria. While hefty fines are likely on the horizon to settle the issues, Glencore’s profitability will allow the company to put these matters behind it and clear the path for a new era under Gary Nagel’s stewardship.

Heading for new record high as commodity prices accelerate

GLNCY shares have been making higher lows and higher highs since March 2020, when the pandemic sent stocks and commodities to bottoms.

Source: Barchart

The monthly chart, above, shows that the March 2020 low at $2.51 was higher than the January 2016 $1.95 bottom that occurred when GLNCY ran into financial trouble. After shedding non-essential assets, stock purchases by the company’s management, and a recovery in commodity prices, Glencore survived and thrived. The former CEO remains the company’s second-leading shareholder with an over 9% stake.

The most recent high came this past May, at $9.48 per share. GLNCY rose as copper reached its record peak. Above the 2021 high, the next targets stand at $11.68 and $12.778 per share, the 2018 and 2014 highs. The ultimate upside resistance level stands at $15.70, the February 2012 high that came after the company’s 2011 IPO.

Glencore is a company that plays a leading role in the global commodity markets. Inflationary pressures from central bank liquidity and government stimulus will be the pandemic’s legacy in the coming years. Glencore’s assets, relationships, and know-how put the industrial metals, mining, and energy company in the perfect position to profit in the raw materials bull market.

I expect a new record high in GLNCY shares over the coming years. At $9.16 after the Tuesday, Aug. 10 close, that would take the stock nearly 75% higher.

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