GLNCY Glencore Plc (PK)

By Helen Thomas 

Glencore has been on one big round trip. Despite rising over 80% since mid-January, its shares are just about back to where they were before the balance-sheet driven panic of last September.

But without a tailwind from commodities prices, the most likely direction for Glencore's stock this year appears to be sideways.

The miner-cum-trader's results Tuesday revealed no problems. A substantial loss thanks to write-downs to asset values wasn't a big concern. More important, Glencore's debt reduction is on track. It plans to sell more assets than previously announced, cutting net debt to $17 billion to $18 billion this year, or about 2.2 times its earnings before interest, taxes, depreciation and amortization at spot prices.

Essentially, Glencore has steadied the ship. True, it must still seal a deal to sell a minority stake in its agriculture business, as well as other asset sales. But the company's ability to move decisively and at speed isn't in doubt. Last year's worst fears about a collapse in trading profits have subsided, even if operating profit guidance for 2016 remains subdued relative to the unit's supposed steady-state potential.

The missing piece of the puzzle, whichever way you cut it, is a sustainable commodities-price recovery. Glencore's rally this year started, almost to the day, when the copper price began gently to rise.

Before then its self-help measures hadn't stopped a slow drift down in its shares. Higher prices, signifying tighter underlying markets for copper, zinc or coal, are key to reinvigorating the trading arm, as well as likely easing asset sales and seriously boosting mining profitability.

The tougher it becomes to find additional capital expenditure and cost savings, and Glencore has cut almost to the bone, the more reliant all the miners are on a price recovery. Meanwhile, it is hard to argue that the stocks are terribly cheap: Jefferies puts Glencore on about 8.6 times 2016 Ebitda, against 7.5 times for sector peers.

Ivan Glasenberg, chief executive, argues that mining investment has been slashed which, eventually, must mean improving prices. Meanwhile, the question is how confident investors feel in China's economy, in global growth, in commodities demand and in Glencore's ability to withstand the storm. Only the latter is close to being answered.

Write to Helen Thomas at helen.thomas@wsj.com

(END) Dow Jones Newswires

March 01, 2016 08:55 ET (13:55 GMT)

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