Glencore International Gets a Haircut

Montreal, Canada

No other company received more global acclaim prior to its initial public offering (IPO) last month than Glencore International plc (London-GLEN). The massive multi-billion dollar commodity trading house earned a fortune for its partners over the last decade and beyond. In May, the company went partially public and its CEO made billions.

These guys know how to trade commodities. Glencore ranks as one of the smartest commodity houses in the world and probably compares to Goldman Sachs in terms of shrewd market-making trades and investor savvy.

But the reality is totally different compared to April when Glencore couldn’t fill enough pre-IPO subscriptions from hungry investment bankers. The stock has been a big disappointment.

Glencore’s earnings last week revealed strong numbers but the markers weren’t impressed.

After reaching a post-IPO high of 5.59 pence, Glencore has declined more than 12% in sterling terms – and more than 14% in dollars since May. That ranks as one lousy IPO.

The timing of this offering was perfect — for Glencore’s partners. The company, which derives the bulk of its trading profits from industrial metals, went to market just as some base metals were peaking.

For months, storage data from the Shanghai Metals Exchange clearly depicted a significant accumulation of metal stockpiles; the markets largely ignored this information as copper and other metals continued rallying. Some, however, ran into trouble. Nickel has been a disaster.
So would I buy Glencore at this level?

The summer is almost always a bad time to be invested in raw materials. I outlined the case for that yesterday. But as the summer progresses and the markets become even more volatile, I would consider taking a punt in Glencore. Nobody knows commodities better. It’s almost like owning your own commodity hedge fund but without those expensive incentive fees. And the stock trades daily, unlike most hedge funds.

Watch Glencore. I’ll bet she’ll make a big comeback over the second half of the year once China gets through this economic soft patch.

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