Rising fossil fuel prices allow Glencore to generate massive profits

Glencore, the Swiss commodities trading giant, will pay its shareholders an additional $4.5 billion after its profits skyrocketed in the first half of the year amid rising oil, gas and coal prices. In the first half of the year, net income attributable to shareholders increased ninefold, jumping to nearly $12.1 billion, it said in a statement Thursday.

Operating income from its brokerage business more than doubled to $3.7 billion amid high price volatility. Gross operating surplus from mining activities rose 127% to $15 billion on record coal prices. Added to this was the deposit from the Cerrejón coal mine in Colombia, from which Glencore bought the shares it did not yet hold, the group specifies.

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“Exceptional performance

The explosion in commodity prices since the beginning of the war in Ukraine has enabled it to significantly reduce its debt, which has been reduced to $2.3 billion from $6 billion at the close of the financial statements at the end of December. Based in Baar, in the Swiss canton of Zug, the group, known for its favorable corporate tax regime, will increase returns to its shareholders in the form of both dividends and share buybacks.

It will make a special redistribution of $1.45 billion at the level of the dividend and pay them 3 billion share buybacks. These additional payments total $8.5 billion that has been returned to shareholders for 2022. Glencore has delivered an “extraordinary” performance in the face of geopolitical and macroeconomic events that have resulted in an “extraordinary dislocation in the energy market,” its chief executive said. South African Gary Nagle, quoted in the press release.

“Complex” outlook for metals

For the second half of the year, the boss of the group, which is active in many commodities such as coal, copper and cobalt, notes “the tightening of financing conditions”, while central banks are raising interest rates, the fight against inflation, but also the “clouding” of the economic outlook is causing uncertainty in the industry.

“Nevertheless, given the few short-term options to restore balance to global energy markets, coal and LNG prices appear poised to stay elevated, especially given the challenge of securing sufficient energy and being reliable for the coming Northern Hemisphere winter . ” he added.

“For metals, the prospects are more complex,” the Glencore boss assessed, on the other hand, between the “risks of supply”, the “shortages of personnel, water and energy” and “disruptions in supply chains” and “government risks” and the ” likely weakening” of demand in certain markets. However, he sees “recent signs” that suggest China is recovering from the second-quarter bottom, “which could help offset weaker conditions in other key markets.”

At around 9:30 GMT, action was up 1.77% at 453.95 pence on the London Stock Exchange, where the stock is listed, while the FTSE100, its benchmark index, fell 0.18%. Glencore is the latest player in the industry to deliver big returns for its shareholders, noted Russ Mold, chief investment officer at AJ Bell. “Even so, with recession risks looming, investors may not see such a high level of generosity going forward,” he said.

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