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Glencore posts 50% rise in profits amid market turmoil

‘Commodity prices are resilient at the moment,’ Glencore chief executive Ivan Glasenberg said

Commodities trader Glencore posted a 50% rise in first-half profit despite tough trading markets and said it saw potential opportunities emerging from current market turbulence as commodity demand remains strong.

A robust outlook and a more modest than expected quarter-on-quarter drop in its closely watched marketing business comforted investors, who sent the stock up as much as 6% in early trade.

“As we look across the board, we still see demand looking strong in Asia, the Chinese see buying opportunities … so commodity prices are resilient at the moment,” chief executive Ivan Glasenberg told reporters.

“The turmoil in the market has allowed us to look more aggressively at opportunities, because not everything is as high priced as it was a few months ago.”

In what was read as a sign of confidence in commodities markets from the world’s largest diversified commodity trader, Glencore announced on Wednesday it would spend 0m (£171m) buying shares in Australia’s number two nickel producer Minara that it does not already own.

Glencore has said that the ability to seize acquisition opportunities thrown up by market conditions was a key reason for its listing earlier this year, when it ended almost four decades out of the public eye.

Glencore reported an adjusted earnings before interest and tax (EBIT) of .3bn, in line with forecasts, while net income rose 57% to .45bn.

Shares in the group, which have been battered during the market rout, were up 2.6% at in early trading at 400p, outperforming the broader sector but still well below its listing price of 530p.

“Post-IPO Glencore has more closely tracked the investment banks and traders than its mining peers … We believe the reason is fear of declining commodity trading profitability and access to liquidity,” Liberum analysts said in a note.

“Marketing’s first-half EBIT is up 45% year-on-year, indicating Glencore can thrive in difficult trading markets.”

Oil volatility

Operating profit for Glencore’s whole trading, or marketing division rose 45% year-on-year in the first half, but dipped in the second quarter against the first, as improved metals struggled to make up for weaker earnings in energy products where volatility had boosted arbitrage opportunities in the first three months of the year.

“The second quarter has been tight, there has been massive volatility in the oil price and there was no trend in the business … The opportunities, the fundamentals of the business did not present themselves,” Glasenberg said.

“The third quarter is starting as not bad, but it does not look like it will be in the region of the first quarter.”

Quarter on quarter, oil trading income fell 37% but over the half, income from oil trading was still more than double a year ago.

Rival trader Noble, seen by many as one of the closest models to Glencore’s on the trading side, saw earnings from its metals, minerals and ores division recover in the second quarter after a dip in the first three months.

On the industrial side, which includes Glencore’s metals, energy and agricultural production, operating profit rose 54%, boosted by higher commodity prices.

Glencore said the bulk of its projects were on track but had seen delays at its Prodeco coal project, where it was forced to cut production forecasts after delays in the delivery of mining equipment from Japan.

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