The FTSE 100 index was dragged into the red as mining companies weighed on the index after Glencore (GLEN) reported that it had cut its 2019 copper production target and China, a top metal consumer, reported weaker-than-expected factory data. The FTSE 100 index closed 0.3% down, while Glencore, which was joined at the bottom of the index by rival miners, was down by 2.6%. Even as Standard Chartered surged on buyback plans, miners and exporters were affected by disappointing news and a stronger pound. Nevertheless, the index managed to rise for the fourth consecutive month.
Glencore is among the world's leading diversified natural resource companies and is the world's most powerful commodity trader. It is engaged in production and distribution of minerals and metals, crude oil and oil products, coal and agricultural products. Through offices in 50 countries and approximately 150 assets, the company produces and markets more than 90 commodities. On 25th April, the Swiss-based trading company disclosed that it is under investigation over potential corrupt practices linked to commodities by the Commodity Futures Trading Commission. The company had previously revealed that the US Department of Justice is investigating it for alleged violations of the Foreign Corrupt Practices Act. The new investigation is a new source of possible liability in the US and had caused the shares to decline.
The shares of the company were put under renewed pressure after the company reported that its production in the first-quarter had been battered by a number of issues. As the world's biggest metal trader deals with multiple problems across its operations, the mining behemoth was forced to cut its 2019 production targets for copper, oil, ferrochrome and nickel. The company reported that impact of safety-related stoppages and smelter outages at Mopani, Zambia and reduced integrated metal production in Australia due to severe flooding in Queensland had resulted in lower production in the first quarter. It also warned that production in 2019 would be lower by about 3 per cent and reduced output guidance for a range of other commodities.
The company had earlier forecasted copper production to be approximately 1,540,000 tonnes but reduced the target to 1,460,000 tonnes, plus or minus 30,000 tonnes. The mining sector as a whole has come under pressure from concerns about its exposure to environmental and political risk; this month, BHP Group and Rio Tinto, the world's biggest and second biggest miner respectively, cut their forecasts for iron ore output after a tropical cyclone in Australia. However, the company is particularly vulnerable as its operations are in high-risk countries, like the Democratic Republic of Congo.
Analysts described the company's first-quarter production results as weak and said that sales could be lower by approximately $430m (£330m) due to cut in guidance. The slump in shares was further accentuated by disappointing China's April factory activity, which unexpectedly slowed. As most industrial metals weakened, mining shares were at over a month-low.
Share Price Commentary
Daily Chart as at May-01-19, before the market closed (Source: Thomson Reuters)
May 2019, at the time of writing (before the market close, GMT 2:55 pm), GLEN shares were trading at GBX 303.6, down by 0.26 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 409.80/GBX 268.35. The company’s stock beta was 1.95, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was £41.60 billion with a dividend yield of 5.08 per cent.