Good Morning,
Yesterday, we had Ivan Glasenberg telling everyone how it is
in the copper market. That the market has been manipulated by hedge funds
(remind me what Glencore does again?) and that supply and demand is good in
copper. In fact, one is inclined to think Ivan is suggesting that the market has
it all wrong and Ivan is right.
Ivan Glasenberg (NH FT Article) called upon the copper
producers to shut unprofitable mines and blamed traders for pushing down
commodity prices - not the fact that GLEN purchased assets requiring millions
to be spent on them just to improve cost efficiencies. In the meantime, GLEN needs a
little assistance from the industry just to keep themselves a float and avoid another
equity raise or distressed sale of assets.
Not content with begging/suggesting (pending on your view)
for the closure of expensive excess capacity and tiptoeing on the verge of a
full-blown OCPEC (Organization of Copper Producing & Exporting Countries),
Glasenberg talks up copper’s prospects temporary closure of mines in Congo, Zambia should have impact on market.
Although there was just a slight omission, something perhaps
Glasenberg forgot to mention - raised by yours truly near a year or so ago on
FTML. China has been switching copper for aluminium (AL), with developments
improving the lifespan and reducing corrosion/deterioration of the AL offering.
With 8MT's of surplus AL there's a good case for the benefits over CU. Over to
the lobbists for CU hoping the
Government ignores the appeal of the Ali-Switch. It’s worth remembering China
want more consumption...
The FT's Lucy Hornby in Beijing with, Copper and aluminium battle it out for Chinese grid tenders - Rout in commodities prices sparks tough lobbying for plum contract.
Glasenburg's closures simply won't be enough, those laden with debt, as
producers will return to the markets for equity to reduce debt and reduce
costs, or go into mass mothballing/care and maintenance, there's a binary
solution to the supply/demand issues.
Obviously its wise for Ivan to do the PR whilst China is
closed to build up a decent headwind. Glencore’s share price rise, save for
mass PR, is unwarranted. Its likely GLEN will be forced to sell part of their
agri-division to a debtholder for $2B. Modelling on Ivan suggests there’s a
sutbborness to let go of anything Glencore have amassed / built up. Thus the PR
in America and UK to prevent a further collapse in the share price.
We should not forget the statement by, Glencore in Hong Kong, the prudent part being , “the Board confirms that it
is not aware of any reasons for these price and volume movements or of any
information which must be announced to avoid a false market in the Company's
securities or of any inside information that needs to be disclosed under Part
XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
Kong).”
With China (the cat) being away, the mice (Glencore et al) can play, expect normality to resume around the 12th October. If the Chinese government selected an aluminium solution for its electricity grid ‘infrastructure rollout’, we shall be forced to utilise analogies to Apocalypse Now:
Kilgore: Smell that? You smell
that?
Lance: What?
Kilgore: Napalm Leveraged copper producers son. Nothing
else in the world smells like that.
[kneels]
Kilgore: I love the smell of napalm
leverage in the morning. You know, one time we had a hill bombed, for 12 hours.
When it was all over, I walked up. We didn't find one of 'em, not one stinkin'
dink body leveraged copper company. The smell, you know that
gasoline margined smell, the
whole hill. Smelled like
[sniffing, pondering]
Kilgore: victory. Someday this
war's gonna end...
Atb Fraser
