Glencore Boosts Trading Profit Estimates by $700 Million

Glencore Xstrata Plc, the world’s largest metals trader, increased its forecast for 2014 pretax profit from its trading arm by $700 million on expected gains from the takeovers of Xstrata Plc and Viterra Inc.

Glencore expects 2014 earnings before interest and taxes from trading commodities of $2.7 billion to $3.7 billion compared with previous guidance of $2 billion to $3 billion, Chief Executive Officer Ivan Glasenberg said today.

Trading profit will rise as production from Xstrata’s mines and Viterra’s grain-handling business flows directly into Glencore’s marketing division, where traders can wring profit from commodities before they are sold to end users.

“The benefit that the guys have of arbitraging it, blending it and the synergies they can get from it will kick into the marketing results,” Glasenberg, a former coal trader, said on a conference call.

Glencore became the fourth-largest mining company in May through a $29 billion takeover of Xstrata, adding coal, nickel, zinc and copper production to its trading empire. It completed a $5.9 billion purchase of Canada’s Viterra in 2012.

Commodity Prices

As Glencore has expanded into production, results from its trading operations have remained steady, partially offsetting declining commodity prices. Glencore’s 2013 earnings benefited from an 11 percent jump in profit from commodity trading as metals and energy operations countered weakness in agriculture.

Adjusted Ebit from commodity trading rose to $2.36 billion from $2.13 billion, Glencore said today in a statement. The Baar, Switzerland-based company’s marketing of commodities like metals, coal, oil and grain grew to 32 percent of total adjusted Ebit, from 25 percent.

Traders and mining companies are increasing marketing as investment banks like Barclays Plc pull back from commodity operations amid tighter regulatory scrutiny. Glasenberg said his company will benefit as banks, which have access to cheaper financing than Glencore, withdraw.

“Is it better for us that they are not in physical commodities? Yes, it does create opportunities,” he said.

Glencore’s profit from trading helped “offset the negative impact of declining commodity prices on average for the year,” Jefferies LLC said in a note. Further declines won’t halt growth, the brokerage said.

Crop Shortfalls

Metals trading contributed the most to marketing’s adjusted Ebit, bringing in $1.62 billion in 2013, up from $1.36 billion. Glencore said trading volumes increased and results were helped by aluminum and zinc demand. Ebit from trading energy products like coal and oil increased by 45 percent to $629 million.

Agricultural trading profit was “substantially lower” on crop shortfalls, limited price swings and problems with supply and delivery in South America. Adjusted Ebit from agricultural trading declined to $198 million in 2013 from $371 million.

Trading division earnings before interest, taxes, depreciation and amortization rose 17 percent to $2.6 billion, short of the $2.75 billion estimate of analysts at Nomura Securities Co.

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

Before it's here, it's on the Bloomberg Terminal.