Glencore Upgraded By Analysts

Morningstar analysts have raised their fair value estimate for the FTSE 100 miner, but weaker Chinese GDP growth will mean lower prices for most of Glencore's products

Mathew Hodge 15 April, 2019 | 2:56PM
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FTSE 100 miner Glencore (GLEN) ranks among the most diversified of the large global miners. But because China is the key demand driver for nearly everything Glencore digs out of the ground, diversification benefits are limited. Weaker Chinese GDP growth and the end of the investment-led economic model portend tepid demand and lower prices for most of Glencore’s industrial commodities. Glencore's oil and agriculture businesses are less China-centric but smaller. Glencore's marketing business, about a fourth of global pre-tax profits, should be relatively resilient as China slows.

We are raising our fair value estimate on no-moat rated Glencore to 265p from 250p previously. The shares currently trade around 330p. Continued near-term strong demand for steel in China means we've extended the time we expect coking coal to decline to our long-term price for a year to 2022. We now expect the price to average $150 per tonne to 2021, versus $120 per tonne previously. Glencore also benefits from the 14% rise in the spot zinc price to $1.34 per pound and the 5% rise in the spot nickel price to $5.90 per pound. The 28% decline in the spot cobalt price to $14.30 per pound offsets some of these positives.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Glencore PLC357.20 GBP0.00Rating

About Author

Mathew Hodge  is Morningstar's director of equity research, Australia & New Zealand.