Glencore earnings decline 8% in first half of 2012

by World Grain Staff
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BAAR, SWITZERLAND — Glencore International reported on Aug. 21 an 8% drop in earnings for the first half of 2012, due to falling prices and global economic weakness.

Glencore said its net profit from January-June of this year was $2.275 billion, a drop from the $2.474 billion reported for the first half of 2011. Revenues of $108 billion were up 17% from the $92 billion reported for the same period last year.

“Financial markets were relatively optimistic entering 2012, following the sovereign debt-related challenges experienced during H2 2011. This optimism generally faded as the half progressed and, with it, expectations for economic growth and commodity prices,” said Chief Executive Officer Ivan Glasenberg. “Concerns over how precisely the European situation would and could be resolved have continued to erode global risk appetite. For the world’s two most important economies, the U.S. and China, 2012 is essentially a year of political transition. Each of these factors extends into H2 2012 and is likely to continue to hinder the gradual process of underlying economic recovery following the 2008 financial crisis.”

Glencore announced on March 19 that it will acquire Viterra Inc., subject to regulatory and shareholder approvals. Viterra’s shareholders voted to approve the acquisition on May 29. Substantially all regulatory approvals have now been received, including competition and foreign investment clearances in Canada and Australia. The only outstanding approval remaining is MOFCOM, China.

A decline in average prices for many key commodities was mostly offset in the first half of the year by strong sales of metals, minerals and agriculture, Glencore said.

Glencore reported EBIT of $103 million, an increase from the $75 million reported last year, for its agricultural products sector.

Grain prices were directionless and range bound in H1 2012 and, for most of the period, were below the price levels of H2 2011 and well below price levels of H1 2011. Oilseed prices, having reached a low early in the year, subsequently increased as Argentine production fell short of expectations due to an extended drought for the second year in the past three years. Cotton prices were also subdued, considerably below 2011 levels and gradually weakened over the period.

At the end of H1 2012, a drought in the U.S., FSU and Eastern/Southern Europe began to impact both grain and oilseed production forecasts and increase prices. Subsequently, with continuing dry and hot weather, particularly in the U.S., it has become apparent that production shortfalls will be severe and supply/demand will consequently be extremely tight, Glencore said. H2 2012 is therefore likely to be a considerably higher priced and more volatile environment than H1 2012.

The E.U. biodiesel business continues to be very challenging with new capacity coming on stream in 2012 despite poor margins. Imports of soy based biodiesel from South America have eroded E.U. biodiesel demand as has an effective reduction of the E.U. biodiesel use mandate.

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