Glencore raises coal price and cost forecast in ‘unprecedented’ environment

Glencore PLC on Friday raised price and cost guidance for its coal operations, announcing that the trading business will meet its long-term annual profit target in the first six months of this year.

The mining and trading giant GLEN,
said that “unprecedented dislocations” in energy markets have resulted in record price differentials between coal benchmarks and grade categories.

As a result of these wider divergences, Glencore has raised its H1 coal portfolio mix adjustment guidance to between $82-$86 per tonne compared to an expected Newcastle thermal coal price benchmark of $318 per tonne. This compares to previous forecasts for 2022 of $32.80 based on a Newcastle price of $175.

The Company’s mix adjustment policy is a discount used to calculate the realized price for its entire coal portfolio as a deduction from the Newcastle price. Glencore has coal mines in three countries with different grades.

Consistent with the higher prices, Glencore is also raising first-half cost expectations for its coal operations to between $75 and $78 per tonne, up from the previous 2022 guidance of $59.30 per tonne. This reflects higher government license fees and input costs for diesel, explosives, logistics and electricity.

RBC Mining Analyst Tyler Broda said this update should result in an upgrade in consensus expectations as the benchmark Newcastle price is higher than market expectations.

Glencore’s coal operations generated adjusted earnings before interest and taxes of US$3.06 billion in 2021, contributing to the group’s total revenue of US$14.50 billion.

Additionally, the company said its marketing segment — Glencore’s trading business — is expected to post half-year adjusted EBIT of more than $3.2 billion. This is the high end of the company’s long-term annual guidance for marketing of $2.2 billion to $3.2 billion. For the full year 2021, the division generated adjusted EBIT of $3.7 billion.

“In this challenging and heightened risk environment, the financial performance of our Marketing segment continued to be supported by periods of heightened to extreme market volatility, supply disruptions and stressed physical market conditions, particularly as they relate to global energy markets,” said Glencore.

Shares at 0722 GMT were up 1.2% at 469.70 pence.

Write to Jaime Llinares Taboada at; @JaimeLlinaresT Glencore raises coal price and cost forecast in ‘unprecedented’ environment

Brian Lowry

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