Trading in the spotlight as Glencore seeks way out of crisis

Wed Sep 30, 2015 2:05am EDT
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By Jessica Jaganathan, Libby George and Dmitry Zhdannikov

LONDON (Reuters) - As Glencore's stock went into free fall in August in the face of heavy debts and shrinking earnings, its chief Ivan Glasenberg had a defiant message - traders can beat weak commodity prices during market downturns.

But while analysts and investors were trying to figure out how trading could save a company in crisis, several traders were leaving the firm after what industry sources said were trades that failed to reward the big risks taken and the large amounts of capital employed.

The departures of Edmund Lau and Tay Meng Yee from Glencore's fuel oil desk in Singapore in August and this month's departure of the global head of fuel oil, London-based Yannick Fedele, came after Glencore bet big in the world's top fuel oil and ship refueling market in Singapore.

Industry sources say Glencore, together with a number of rivals, wrongly bet on a bull market for fuel oil. Sources close to Glencore say money wasn't actually lost, the products desk would expand and Fedele's departure was not linked to the events in Singapore.

But whatever the result, it shows that the bet on trading as a savior in a crisis is far from straightforward and will require all the skill and experience of hundreds of traders to prove that Glencore's unique model works.

Glasenberg's model was based on expanding the huge merchant of oil, coal, metals and grains into production by borrowing over $30 billion to buy coal and copper mines.

The idea was simple - during commodity price booms coal and copper generate huge returns. During downturns, trading would pay the bills as it thrives on market volatility.

As mining normally generates around three quarter of Glencore's earnings, trading was generally ignored by the market after Glencore's record $10 billion share placement in 2011, which turned Glasenberg and fellow traders into billionaires.   Continued...

The logo of Glencore is pictured in front of the company's headquarters in the Swiss town of Baar, November 13, 2012.  REUTERS/Michael Buholzer