Hogsback on Glasenberg's cunning plan

GLENCORE has committed to limiting the production of coal to help keep activist shareholders quiet and reduce greenhouse gases. However, Hogsback reckons there is more to the story and Glencore CEO Ivan Glasenberg could simply be trying to maintain prices by restricting supply of premium thermal coal.
Hogsback on Glasenberg's cunning plan Hogsback on Glasenberg's cunning plan Hogsback on Glasenberg's cunning plan Hogsback on Glasenberg's cunning plan Hogsback on Glasenberg's cunning plan
Australia's largest coal producer said it would cap its global thermal and coking coal production at the current level of about 145 million tonnes after consulting with shareholders and deciding to further its commitment to the transition to a low-carbon economy.
 
"To meet the growing needs of a lower carbon economy, Glencore aims to prioritise its capital investment to grow production of commodities essential to the energy and mobility transition and to limit its coal production capacity broadly to current levels," it said.
 
"To deliver a strong investment case to our shareholders, we must invest in assets that will be resilient to regulatory, physical and operational risks related to climate change.
 
"We are committed to transparency and will continue to publish data on our climate change performance on our website, including continued disclosure of our Scope 3 emissions.
 
"We will give consideration to how our climate change objectives can be reflected in the design of the relevant schemes for executive management."
 
While environmentalists have interpreted the move by Glencore as a retreat away from coal, Federal Resources Minister tweeted that the company has developed into a major investor in thermal coal in Australia.
 
"Glencore made one of the biggest thermal coal purchases in history last year [Rio Tinto's Hail Creek mine for US$1.7 billion and a share of HVO in New South Wales for $1.1 billion]. 
 
"They are one of the world's biggest thermal coal miners. Of course they don't want to let others in."
 
Wood Mackenzie research director Prakash Sharma said Glencore had an estimated market share of nearly 25% in the seaborne coal trade last year. 
 
"It also has a dominant position in the premium thermal coal segment," he said.
"In that regard, capping coal production is significant because prices could remain high amid tighter supplies. Glencore is chasing value over volume.
 
 "In a 2C, premium thermal coal demand is expected to be resilient compared to other coal types. That means companies holding on to high energy thermal coal assets stand to gain and will realise higher prices. Glencore sits comfortably in that space due to its competitive cost position."
 
Hogsback reckons Glasenberg has crunched the numbers on premium thermal coal prices and knows what will be good for the company's bottom line in the future.
 
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