Glencore, the Swiss commodities giant, has announced a significant reduction in its dividend following a 50% decline in earnings. The company’s adjusted earnings for 2023 have halved, dropping to $17.1 billion, due to a sharp slump in global coal prices. This decline in earnings has prompted Glencore to cut its dividend in order to pay down debts from its $9 billion takeover of Teck Resources’ steelmaking coal assets in November last year.
The impact of the global coal price collapse on Glencore’s earnings is evident in the performance of its London-listed shares, which fell by 3% on Wednesday. Over the past 12 months, these shares have lost 25% of their value. The majority of this impact can be attributed to a $9.9 billion drop in Glencore’s earnings from its coal business. The Australia’s Newcastle Thermal Coal benchmark experienced a 52% slump in price, while South Africa’s API4 benchmark saw a 50% drop.
The CEO of Glencore, Gary Nagle, cited several factors that contributed to the decline in commodity prices. These factors included higher interest rates impacting consumer and industrial demand and a normalization of energy markets following the extreme disruption caused by Russia’s invasion of Ukraine in 2022.
In addition to reducing its dividend, Glencore also announced plans to cut shareholder payouts from $7.1 billion in 2022 to $1.6 billion in 2023. The company intends to use this cash to pay off debts related to its acquisition of a 77% stake in Teck’s Elk Valley Resources business. Glencore aims to eventually spin out its combined coal businesses, including its stake in Teck’s assets, into an independent company.
The decline in earnings for Glencore was not limited to coal. The company also experienced a drop in earnings from other commodities, including zinc, nickel, and cobalt. Zinc prices fell by 27%, nickel prices by 28%, and cobalt prices by 50% in 2023. Nagle attributed the drop in nickel prices to a 26% increase in Indonesia’s nickel production and a slowdown in the market for electric vehicles.
Glencore faced additional challenges with a $1.3 billion uptick in costs, a $500 million hit from foreign exchange rates, and a $27 million negative impact from a production slowdown of cobalt, copper, and nickel.
Despite these challenges, Glencore remains optimistic about the future. The company believes that interest rate cuts and an upturn in the economy will pave the way for a strong recovery in 2024.
In conclusion, Glencore’s dividend reduction reflects a 50% decline in earnings due to the collapse of global coal prices. The company plans to use the cash saved from reduced shareholder payouts to pay off debts from its acquisition of Teck Resources’ assets. Glencore also faced challenges in other commodity markets, including zinc, nickel, and cobalt. However, with expectations of an economic upturn and interest rate cuts, the company remains hopeful for a strong recovery in the coming year.
