Recently, the London Metal Exchange (LME) integrated nickel 03 contract rose from US $29246 to US $101365, with a maximum increase of 247%. “Demon nickel” stirred up a pool of muddy water.
Market rumors said that Qingshan group, a leading Chinese stainless steel enterprise, was forced short by Swiss giant Glencore. In this regard, an anonymous person from Glencore’s Swiss headquarters told the reporter of the daily economic news that the statements about Glencore closing down Castle Peak and that Glencore is the driving force behind the soaring nickel price are incorrect.
Canon, an enterprise founded in 1974, started from oil trade and spent more than 40 years growing into a global commodity trading giant and a frequent guest in the top 20 of the Fortune Global 500. It is known as “Goldman Sachs in the global commodity market”.
Behind this is Glencore’s rapid M & A for a long time, so as to expand its business means from simple trade to integrating mining, smelting, production and trade. However, this has also brought about continuous net profit, huge losses and high liabilities. In 2015, Glencore came to the brink of debt crisis, causing the market to worry about “whether it will be Lehman of commodities”.
In public reports, Glencore has been described as a “low-key and secretive world top 500”, which can only be regarded as “half right”: these above make it difficult for Glencore to keep a low profile.
But it is indeed secret – until it was listed in London, UK and Hong Kong, China in 2011, foreigners knew about its wealth. That year, Glencore entered the Fortune Global 500 list for the first time, ranking 18th. Glencore is now the highest earning company in Switzerland, surpassing Nestle, Novartis and UBS in terms of revenue. However, before the “demon nickel incident”, although inventory alone was enough to affect the market prices of a variety of base metals, Glencore did not have a strong sense of existence.
from “trade arbitrage” to “industrial chain take all”
Glencore is almost unavoidable in the Jianghu of commodity trading. Taking cobalt as an example, Guosen Securities Co.Ltd(002736) in a research report on the global supply of cobalt raw materials, Glencore was referred to as “a multinational enterprise that controls the industry pattern”.
Glencore itself acknowledges this, The company has described the following in its 2020 annual report: “For nearly half a century, Glencore has been a feature of the global commodity industry, growing from a physical trader in metals, minerals and oil to one of the largest and most comprehensive natural resources companies in the world. Today, with its portfolio of commodities and activities, the business has a unique position to meet the expected resource needs in the future.”P align = “center” Image Source: screenshot of Research Report
How did canon, a crude oil trader founded in 1974, grow into a current giant?
According to China Nonferrous metals.com, there are two main ways for enterprises to obtain mineral resources: one is to directly invest in mining projects for resource development; Second, obtain resources through trade means, including purchasing capacity from upstream enterprises to obtain stable resource supply, signing long-term supply agreements with resource parties, spot procurement in the market, etc.
In the above two ways, direct investment has the characteristics of large scale, long payback period and high professionalism, mainly upstream mining enterprises; Traders and smelting (processing) enterprises generally adopt the second way to obtain resources.
The reporter learned from a comprehensive analysis that Glencore has controlled abundant upstream resources globally by realizing the effective combination of these two methods, and provided customers with diversified goods and services with its powerful comprehensive trading means.
By analyzing the development track of Glencore, we can also clearly see that through the implementation of the strategic adjustment of “trade – trade + equity investment – production + trade”, Glencore has realized the transformation from the early “trade arbitrage” to the unique business mode of “industrial chain value creation”.
In the trade stage, Glencore, founded in 1974, was mainly engaged in the trade of crude oil, metals and mineral products in the early stage, and made huge profits through international crude oil trade, building a first mover advantage in Global trade.
In the stage of trade + equity investment, Glencore acquired the equity of upstream industries through investment, expanded the business field of commodities and obtained stable supply of goods.
However, according to the analysis of the Research Report of Nanhua Futures Co.Ltd(603093) Research Institute, Glencore has established a set of profit model different from the traditional commodity trade, which is not simply to earn profit through price difference, but to exchange the stable product underwriting right and advantageous price of mining production enterprises by providing direct financing or other supply chain financial services.
In addition, the above-mentioned non-ferrous metal network article also analyzes that in this process, Glencore still focuses on Global trade. Although it continues to strengthen the transformation from trade to industry, it is relatively less involved in the production of investment enterprises. It mainly obtains sufficient product share from investment enterprises through equity ties, and even the underwriting right of all products.
One of the most talked about mergers and acquisitions took place in 2013, when Glencore merged and reorganized Xstrata, a British mining company. This “century merger” with a final total price of US $61.9 billion made Glencore win various “world’s largest” titles and realized the strong combination of Global trade and mining production, Fully open the “production + trade” two wheel drive mode.
scenery time revenue exceeds RMB trillion
It may be complicated to understand Glencore through commodity trading, but we can get a glimpse of Glencore’s global business from its annual report dataP align = “center” Image Source: screenshot of financial report
In 2020, Glencore achieved a total operating revenue of US $142338 billion, a year-on-year decrease of 33.8%; Meanwhile, the net profit attributable to the parent company was a loss of US $1.903 billion; Ranked 34th in the Fortune 500 list. In 2019, Glencore’s total revenue reached US $215111 billion, and its net profit attributable to its parent company lost US $404 million, ranking 17th among the world’s top 500.
Further forward, in 2015, as the global commodity prices generally fell to the bottom, Glencore successfully made the product prices of zinc, cobalt and copper rise from the low level through output control and trade control, and the income also increased year by year. From 2017 to 2019, Glencore’s annual revenue exceeded US $200 billion, once reaching 1.5 trillion yuan in RMBP align = “center” Image Source: sorted by reporters
According to Glencore’s 2020 annual report, its business is divided into two parts: industrial production and commercial trade.
In terms of industrial production, Glencore will produce 1.26 million tons of copper, 27000 tons of cobalt, 110000 tons of nickel and 1.17 million tons of zinc in 2020, accounting for about 5.5%, 21.6%, 4.4% and 8.5% of the total global output respectively.
Glencore disclosed in its 2020 annual report that the annual operating income of industrial production in that year was US $41.453 billion, of which metal commodities and energy commodities accounted for 73% and 27% respectively; The profit before depreciation and amortization (EBITDA) was USD 7.828 billion, of which metal commodities and energy commodities accounted for 93% and 7% respectively.
According to Guosheng Securities Research Report, jianeng is the world’s largest producer of zinc and chromium, the third largest producer of copper and the fourth largest producer of nickel, and one of the world’s largest coal producersP align = “center” Image Source: screenshot of financial report
At the same time, the trade volume includes 7.49 million tons of precious metal, aluminum ingot, 1.49 million tons of lead, 2.9 million tons of aluminum alloy and 1.49 million tons of ferrous metal, including 7.49 million tons of gold, 1.9 million tons of lead and 2.0 million tons of ferrous metal, including 7.49 million tons of aluminum ingots, 1.9 million tons of lead and 2.0 million tons of aluminum alloy 738 million barrels of petroleum products.
In 2020, Glencore’s trading business achieved an annual operating revenue of 124137 billion US dollars, of which metal commodities and energy commodities accounted for 44% and 56% respectively; Realized EBITDA of USD 3.732 billion, of which metal commodities and energy commodities accounted for 45% and 55% respectivelyP align = “center” Image Source: screenshot of financial report
According to the analysis, Glencore’s trading business has two prominent characteristics: first, strong commodity supply capacity and global marketing network; Second, it has established a set of profit model different from the traditional commodity trade.
First of all, Glencore not only sells its own products, but also quickly organizes the supply of goods through global suppliers to meet various needs of customers. Take copper as an example. In 2020, Glencore will produce 1.258 million tons and its operating volume will reach 3.4 million tons, which is 2.7 times its own output. In addition, Glencore also controls more than 1200 ships, more than 300 storage facilities, more than 2000 kilometers of railway lines, more than 30 ports, etc.
In terms of profit model, Glencore obtains income through controlled physical assets and corresponding hedging transactions. On the basis of comprehensively considering various relevant pricing factors of commodities (including transportation and product quality), Glencore carries out cross regional arbitrage, cross commodity arbitrage and cross time arbitrage by taking advantage of the characteristics of commodity price differences in different regions or periods. At the same time, Glencore has also formed a strategic alliance with international financial institutions to use the trading capacity of financial institutions to engage in futures and derivatives transactions such as crude oil and non-ferrous metals, so as to hedge the risk of commodity price fluctuations and provide customers with corresponding futures hedging value-added services.
On the other hand, Glencore’s companies, industries and employees all over the world are the basis of supporting the above production and trade with an annual income of more than 140 billion US dollars. According to the disclosure, in 2020, Glencore network operated businesses in 35 countries, with more than 40 offices, and employed about 145000 employees, including contractors.
However, the reporter also noted that since 2013, Glencore has continued to reduce the number of employees and contractors. The data disclosed in its 2020 annual report is that there are 87800 employees and 56300 contractors, a decrease of about 1300 and 14000 respectively. In addition, the reporter found on the official website of fortune that Glencore had more than 110000 employees during the peak period.
sell assets and reduce debts at the low point
Nanhua Futures Co.Ltd(603093) Research Institute analyzed that from 2005 to 2019, Glencore was not just a commodity trader, but a global comprehensive mining enterprise integrating mining, smelting, production and trade through crazy leverage and rapid expansion of mergers and acquisitions.
The reporter noted that in the long-term expansion, Glencore also accumulated a high amount of debt, so that in the years when the industry was depressed, reducing debt became one of Glencore’s annual priorities.
The report of fortune Chinese in September 2015 mentioned that at that time, the global commodity price plummeted, and the copper price had fallen to the lowest point in six years. “Glencore, a Swiss mining and commodity giant, is also struggling. It announced that it would issue new shares to raise $2.5 billion, transfer billions of dollars in assets and stop production of two African copper mines.”
At that time, Glencore was almost the “next Lehman”. According to the above report, Glencore took the above measures largely under the pressure of international rating agencies, which have been threatening to reduce its rating to the edge of “junk” if the company does not take further measures to improve its balance sheet. Given its heavy debt, Glencore may be almost unable to assume more debt obligationsP align = “center” Image Source: screenshot of financial report
In October 2015, caixin.com also reported on Glencore’s debt crisis at that time, citing the comments of Anxin securities, which pointed out that Glencore gradually increased its operating leverage from light assets to heavy assets. “This is the accelerator of the company’s performance growth in the case of rising commodity prices. Once the commodity prices and regulatory environment are reversed, it will become a grave digger to exacerbate the deterioration of performance.”
The reporter noted that in the 2020 annual report, Glencore disclosed the debt situation to investors at the beginning, saying: “at the group level, rapid changes in the market led us to suspend the proposed distribution to shareholders to protect our capital structure and accelerate the reduction of net debt to the target range of US $10 billion to US $16 billion, which was successfully achieved by the end of the year ($15.8 billion).”
The reporter also noted that the above $15.8 billion refers to net debt. In terms of debt, Glencore still reached US $37.479 billion in 2020, a further improvement over the previous two years.
In terms of data, according to the statistics of Nanhua Futures Co.Ltd(603093) Research Institute, Glencore’s debt was a process of falling first and then rising from 2015 to 2019, and its net debt reached 25.889 billion yuan in 2015P align = “center” Image Source: screenshot of Research Report
It must be mentioned that reviewing Glencore’s expansion path and business operation mode, many analysts said that the enterprise “broke through the tradition”, which also has a great relationship with its founder. Statistics show that the founder and founder of Glencore is mark Ritchie. For this person, the description of the public information is: “the most controversial international businessman in the 20th century is called the ‘King of oil’ by the industry, and one of the top ten wanted criminals wanted by the U.S. Department of justice for 17 years.” Finally, it was mentioned that he was the founder of Glencore.
According to guangming.com, in 1983, the U.S. Department of Justice accused mark Ritchie of violating the U.S. government’s ban on trade between citizens and Iran and evading personal income tax of $48 million during the Iranian hostage crisis, but Ritchie fled to Switzerland hours before the charge.
“Marc Rich and Pincus green fled the United States during the investigation and fled for 17 years until President Clinton pardoned them in 2001.” This is also recorded in a document obtained by the reporter from the official website of the U.S. Department of Justice (according to public information, Pincus green is a partner of mark Ritchie, reporter’s note)P align = “center” Image Source: screenshot of web page
In July 2021, Glencore ushered in Gary Nagle, the third helmsman. Ivan glasenberg, the outgoing CEO, served as CEO for 18 years, and then mark Ritchie.
“We are one of the world’s largest producers of copper, nickel, zinc, vanadium and cobalt, and we will continue to give priority to investing in these commodities.” Glencore’s 2020 annual report contains such a paragraphP align = “center” Image Source: screenshot of annual report
