Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

A year ago, Glencore was staring into the abyss. But having hit an all-time low in September 2015, the stock has since gained 161 percent, trouncing its London-listed mining rivals.

Core Holding
Glencore has surged since its meltdown in September 2015
Source: Bloomberg
Note: Performance indexed to 100.

Glencore's worked hard to heal some self-inflicted wounds, chiefly a mountain of debt taken on during the commodities boom. Net debt has been falling steadily, aided by selling off assets, and the company targets $16.5 to $17.5 billion by the end of the year, down roughly a third from the end of 2015. Earnings have beaten the consensus forecast for six quarters straight, according to data compiled by Bloomberg.

Self-help only goes so far when your business is producing and marketing raw materials, though. The stock has taken a breather this month as its first-half results reminded investors it's still repairing its balance sheet in an uncertain market.

Three commodities in particular matter for Glencore: copper, coal and zinc. Mining these accounted for about two-thirds of the company's adjusted Ebitda over the 12 months through June. And while the numbers aren't broken out, money made on marketing them would boost that proportion.

Rule Of Three
Copper and coal production generate half of Glencore's Ebitda, with zinc adding another 15 percent
Source: the company
Note: For the 12 months ending June 2016. Data are before corporate eliminations and adjustments for accounting for joint ventures.

Risks are building around all three.

Copper prices, despite a couple of rallies, are now slightly negative for the year. A Goldman Sachs report warning of a "supply storm" hasn't helped matters. Neither has a sudden jump in stocks of copper at London Metal Exchange warehouses, particularly those in Asia -- possibly a signal that China is throwing off excess tonnes.

Trouble In Storage
The spike in LME copper inventory has spooked the copper market
Source: Bloomberg

Coal is similarly challenged. As fellow Gadfly David Fickling wrote in July, thermal coal's recent rally has been fueled by lower output from mines in China, which will likely reverse somewhat due to the rally itself.

Meanwhile, India presents another problem. Asia's other big emerging market has in one respect been even more important than China for coal: India has accounted for about 60 percent of the growth in global thermal coal imports since 2009, according to Liberum Capital. But as my colleagues at Bloomberg News reported on Tuesday, New Delhi is encouraging the country's power producers to expand overseas amid a surplus of domestic power generation capacity. That means more downtime for the country's coal-fired plants -- and stockpiling of the fuel itself. India's coal ministry expects imports to drop by a fifth in the current fiscal year.

Of the three, zinc has the best prospects through the rest of the year. Mothballed mine capacity, including a large slug of Glencore's, has helped push the market into deficit this year, helping prices to rebound:

Self Help
Glencore's own cuts have helped push zinc prices back up
Source: Bloomberg
Note: Rolling 3-month forward LME price.

That reduces the risk of zinc prices collapsing later this year. On the other hand, at around $2,300 a tonne, zinc isn't too far off the $2,500 level that has been a de facto ceiling for the metal since the financial crisis. So upside from here is probably limited, especially as it would tempt some of that mothballed supply back onto the market. And like all industrial metals, zinc is beholden to the continued success of China's credit-and-construction growth model.

Glencore's shareholders will undoubtedly sleep better this September compared to the last one. But coal and copper promise at least a few fitful nights through the rest of 2016.

(Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.)

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. All these proportions are calculated before corporate eliminations.

To contact the author of this story:
Liam Denning in New York at

To contact the editor responsible for this story:
Mark Gongloff at