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Better world economy in 2014 – Glencore

Ivan Glasenberg

Ivan Glasenberg

4th March 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The outlook for the world economy in 2014 was better than had been seen for a number of years, with the markets for copper, zinc, nickel and coal remaining positive, GlencoreXstrata CEO Ivan Glasenberg said on Tuesday.

Speaking during the presentation of better-than-forecast results buoyed by the company’s trading division, the South African-born head of the London-, Hong Kong- and now also Johannesburg-listed GlencoreXstrata said global economic growth was now forecast to accelerate on the back of reducing austerity in advanced economies.

The company said that the lifting of its final dividend beyond last year's was an indication of its confidence in prospects that were being driven by strength in the US, supported by a more confident consumer, a flexible labour force and a strong financial sector.

Glasenberg added that Europe was also forecast to record positive growth after two years of contraction, driven largely by external and domestic demand as well as a reduction in the pace of spending cuts.

In addition, robust Chinese growth was being supported by policy measures and reforms.

Against that background, a positive market outlook remained for the company’s key copper, zinc, nickel and coal markets, with South-Africa-linked coal still experiencing strong demand although oversupplied in the near term.

Glasenberg said that the company expected demand for coal to remain solid in key regions amid high gas prices and the recovering global economy.

“Coal remains the prime choice to fuel economic growth in Asia,” he said, adding that Australian and Indonesian coal supply growth was expected to be significantly lower in 2014 as a result of capital expenditure being slashed and projects being suspended.

Indonesia’s ban on the export of nickel ore and the likelihood of enforcement had potentially transformed nickel’s outlook and was likely to balance the market in 2014 and create a significant deficit in 2015.

Chinese nickel output was forecast to fall below 200 000 t/y in 2015 from 420 000 t/y in 2014, with supply difficult to replace in the short term.

The much anticipated tightening of zinc mine supply was materialising, illustrated by a zinc metal deficit in 2013 for the first time in five years.

New zinc mine supply was insufficient to replace closures of the Brunswick and Perseverance mines in 2013; Lisheen was winding down and Century and Skorpion would close in 2015/16.

Chinese mine supply, which appeared inefficient, fragmented and suffering declining grade, but which might have upside supply surprises, would determine the fate of the zinc market.

While copper demand was balanced near-term, structural deficits would emerge again after 2015

Lack of high quality copper projects beyond 2015 would shift the market back to deficit given the mine closures forecast in the second half of this decade.

“We are confident about our future,” Glasenberg said, adding that the company was in strong and improving commodity cost curve positions.

It was expecting further cost reductions from merger synergies already at $2.4-billion and was on a capital expenditure reduction trajectory.

The company was helped in the 12 months to end December by a strong trading performance that offset mining decline and helped the company to beat its earnings forecast.

In its first set of full-year results since the merged group was formed and since its secondary listing on the JSE in November, the widely diversified mining and trading company reported adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of $13.1-billion, up on the $12.3-billion forecast.

The board recommended a final distribution of $0.111 a share, taking the full-year total to $0.165 a share, up 4.8% on 2012 and reflecting continued confidence in prospects.

Production growth was sturdy with copper output rising 26%, to 1.5-million tons overall, and African copper output rising up 43% as both Mutanda and Katanga each reached capacity of 200 000 t/y at year-end. Copper production growth at Collahuasi was 58%.

Ferrochrome production in South Africa rose 32% to 1.2-million tons on higher smelters and furnace utilisation and the successful commissioning of the Tswelopele pelletising plant.

Coal output rose 4% to 138.1-million tons on expansions at Prodeco and in Australian thermal coal.

Edited by Creamer Media Reporter

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