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Glencore Posts 6% Trading-Profit Gain as Oil Offsets Agriculture

Glencore Xstrata Plc (GLEN)’s commodity trading operations had a 6 percent gain in first-half adjusted earnings before interest and taxes as higher profits from oil, coal and metals offset a slump in agricultural products.

Profit from commodity trading rose to $1.19 billion from Ebit of $1.12 billion a year earlier, Glencore said today in a statement. That contrasts with the 39 percent slump in the company’s overall adjusted net income to $2.04 billion.

Trading operations accounted for 37 percent of first-half Ebit at the Baar, Switzerland-based company, according to JPMorgan Cazenove analyst Dominic O’Kane. The world’s fourth-largest mining company was created in May, when Glencore International Plc completed the $29 billion all-share takeover of Xstrata Plc, adding coal, nickel, zinc and copper output to a global commodities trading network

The results from Glencore’s marketing operations were “solid,” even after lower-than-expected earnings from the agricultural product trading division, O’Kane said in a note to clients.

Marketing activities, where traders buy and sell physical commodities hoping to exploit price differences between geographical markets and products, help Glencore counter the impact of lower prices for output from its mines and plants.

“The marketing division can be anti-cyclical and even with commodity prices falling as they have during the first half of the year, the marketing division performed well,” Chief Executive Officer Ivan Glasenberg said on a conference call today with investors.

Oil, Coal

First-half adjusted Ebit from the trading of energy products, which include coal, crude oil and oil products, climbed 43 percent from a year earlier to $501 million, Glencore said. Energy trading margins improved to 0.8 percent from 0.6 percent.

“Even with falling coal prices, the marketing part of the business did very well,” said Glasenberg.

Metals and minerals marketing Ebit increased by 3 percent to $711 million. Glencore said trading in all of its metals divisions contributed to the results. Copper trading volumes were flat at 1.3 million metric tons, zinc rose 15 percent to 1.5 million tons and iron ore jumped 54 percent to 12.8 million tons.

Agricultural products trading Ebit, including oilseeds, cotton and wheat, plunged 87 percent to $15 million. The “disappointing” results were caused by 2012 crop reductions in Australia as well as a lack of price volatility that limited opportunities for arbitrage, Glencore said.

Well Supplied

Markets will be “well supplied,” this year, Chris Mahoney, Glencore’s head of agriculture, told investors on the conference call. He forecast “good underlying demand” for oils and oilseeds.

The U.S. Commodity Futures Trading Commission requested documents relating to warehouses for aluminum and other metals from Glencore, Goldman Sachs Group Inc. and JPMorgan Chase & Co. (JPM), Bloomberg News reported Aug. 13, citing people with knowledge of the probe.

Glencore warehousing unit Pacorini is a “small part of the business,” and an insignificant contributor to earnings, Glasenberg said on the call. He declined to comment on any possible regulatory probes into the warehousing operations.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.

To contact the reporter on this story: Andy Hoffman in Geneva at ahoffman31@bloomberg.net

To contact the editor responsible for this story: Timothy Coulter at tcoulter@bloomberg.net

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