Glencore set to profit from hike in commodity prices

All eyes will be on Glencore on Tuesday as the mining company announces its full results. 

With hype swirling of an oncoming commodities supercycle, and questions over the company’s handling of the coronavirus pandemic, Glencore’s report will go some way to clearing things up. 

In the same way a drop off in demand for commodities harmed Glencore throughout the pandemic, a price recovery could have a positive impact on the company’s future prospects.

Over the course of 2021, and even the next decade, commodity prices look set to sky-rocket.

Goldman Sachs has likened “structural forces” to those which drove commodities prices up in the 2000s. 

While Will Ryder, equity analyst at Hargreaves and Lansdown, highlighted the dramatic differences between commodity prices in the first and second half of the period. 

“Glencore had a tough first half in 2020 as lower commodity prices led the group to write down the value of some assets and drove a $2.6bn loss. However, key commodity prices have since jumped, so we expect the group to have had a better second half,” said Ryder.

“While last year’s strong rebound in many commodity prices might be viewed as a “V-shaped vaccine recovery”, the bank contends it is just “the beginning of a much longer structural bull market for commodities”.

A question mark also remains over the prospect of a dividend payment or lack thereof ahead of Glencore’s full year results. 

The mining giant scrapped its previous shareholder payout on account of the damaging impact of the coronavirus on its balance sheet.  

Glencore last paid a dividend of 10 cents per share on 24 September 2019. 

Will Ryder feels the decision will depend on whether or not Glencore has been able to service its debts over the past two months. 

“Dividends have been shelved until the group sorts its balance sheet out, which means reducing net debt to below $16bn,” said Ryder. 

“Management thought they would sort it out by the end of 2020, suggesting dividends could return this year. However, nothing is guaranteed and it will be worth reading management’s comments with care.”