Glencore fights back — to slash debt by $10bn, halt copper mines in Africa

Mining and commodities giant Glencore (LON:GLEN), which in recent weeks become the poster child of how hard companies have been hit by a brutal sell-off in raw materials, is fighting back.

The Swiss-based company unveiled Monday a $10 billion package of debt-reduction measures, which include issuing up to $2.5bn of new shares, cutting dividends, selling assets and looking to offload a stake in its agricultural business to a third party.

Glencore also said it plans to suspend production at its copper mines in the Democratic Republic of Congo and Zambia, in a move that it says will take 400,000 tonnes out of the market

Glencore also said it plans to suspend production at its copper mines in the Democratic Republic of Congo and Zambia, in a move that it says will take 400,000 tonnes out of the market and potentially provide a boost to metals prices.

Investors reacted positively to the news, sending the company’s shares up about 12% before paring gains a touch to trade 6.5% higher at about 131 pence at 12:40 pm GMT.

At the same time, the announcement of a upcoming stoppage at Glencore’ Mopani operation in Zambia and the Katanga facility in the DRC had an immediate effect on copper prices, with the red metal climbing more than 1% to $5,192 a tonne on the London Metal Exchange.

Shanghai Futures Exchange copper rose 0.8% to 39,370 yuan ($6,183) a tonne.

Glencore CEO Ivan Glasenberg said in a statement that the measures announced today wouldn’t affect the firm’s core business activities and overall franchise value.

However, he acknowledged that “recent stakeholder engagement in response to market speculation around the sustainability of our leverage highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty.”

BoAML upgrade

Bank of America Merrill Lynch upgraded the company's rating to neutral following the plan's unveiling.

"Unlike other management teams in the sector, Glencore has acknowledged its debt problem and is taking steps to address it," BoAML said in an e-mailed note.

"We think the plan goes some way to addressing some of our concerns on Glencore's financing, we do still have a question mark on Chinese demand and hence (only) an upgrade to Neutral. Even after the reductions, the company will still be quite highly geared," the note said.

Glencore swung to a net loss of $676 million in its first half of the year from a profit of $1.7 billion in the same period last year due to write downs in the value of its mines and oil fields, which have been hit by a price slump.

The company is now worth a fraction of what it was when it made its first attempt a year ago at a "merger of equals" with Rio Tinto (LON:RIO), which is valued at $92.6 billion.

Dow futures moved over 4,500 points intra-day.

Carnage: Worst Week For Stocks In 4 Years, VIX Soars Most Ever

• China's worst week since July - closes at 5 month lows
• Global Stocks' worst week since May 2012
• US Stocks' worst week in 4 years
• VIX's biggest weekly rise ever
• Crude's longest losing streak in 29 years
• Gold's best week since January
• 5Y TSY Yield's biggest absolute drop in 2 years

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Did you get message Fed?

THE CLEAR MESSAGE FROM THE MARKETS IS - HIKE RATES AND YOU'RE DONE, GIVE US QE4 OR IT'S ALL OVER!!!

So let's start with stocks...

Bloodbathery... This was the worst week for global stocks (MSCI World) since May 2012

And the worst week for US equities since Nov 2011...

Futures show the pain started with China PMI, then dumped as Europe collapsed,  then there was no help from the machines as gamma was so imbalanced...

Of course we saw The BoJ in da house to help squeeze stocks with some USDJPY crushing...but that only worked for the small caps (easiest to squeeze)... and then it all collapsed...

Dow enters correction... this was the 9th largest point drop in the history of The Dow...

And The VIX ETF saw its biggest 2-day rise since 2011 (no wonder with 61.7mm shares short against just 60.6mm outstanding)

and before we leave stock-land, her is perhaps the 'spookiest' chart... a Fibonnaci 61.8% extension of the 2007 high to 2009 lows 'nails the top' for now... (h/t @allstarcharts )

FX was a disaster...

Chinese production restrictions may seriously impact Zinc consumption

The production restrictions for environmental protection inspections ahead of the 70th anniversary of the victory of the War against Japanese Aggression will significantly impact zinc consumption, SMM says.

Beijing, Tianjin, Hebei, Shandong, Shanxi, Henan and Inner Mongolia will execute restrictions on production to secure air quality for the big parade due to the 70th anniversary of the victory of the War against Japanese Aggression, SMM learned.

The production restrictions across the tire sector in Shandong will take a toll on zinc oxide demand. Most of tire producers in Shandong’s Dongying will be forced to cut output. Shandong has over 300 tire producers which produce 60% of the total tire output in China. Over 170 low-end tire producers are located in Dongying.

Most galvanized plate producers in Hebei’s Bazhou will also be forced to cut output, including large galvanized tube producer Hengshui Jinghua and Handan Youfa. Hebei and Tianjin have an agglomeration of galvanizers, which consume nearly 30% of China’s zinc output.

Operating rates at galvanizers and zinc oxide producers will thus slide further in August, SMM foresees, dampening zinc consumption.

Emerging Market Currencies To Crash 30-50%, Jen Says

Less than 24 hours ago, we argued that although it might have seemed as though Brazil hit rock bottom in Q2 when it suffered through the worst inflation-growth mix in over a decade, things were likely to get worse still.

The country, which is also coping with twin deficits and a terribly fractious political environment, is at the center of what Morgan Stanley recently called “a triple unwind of EM credit, China’s leverage, and US monetary easing” and now that its most critical trading partner has officially entered the global currency war, all roads lead to further devaluation of the faltering BRL. 

And it’s not just the BRL. As Bloomberg reports, former IMF economist Stephen Jen (who called the 1997 Asian crisis while at Morgan Stanley) thinks EM currencies could fall by an average of 30% going forward on the back of the PBoC’s move to devalue the yuan. Here’smore: 

[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen.

Volatility measures were already signaling rising distress in emerging markets even before China's shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months.

"If this is the beginning of a new phase in Beijing's currency policy, it would be the biggest development in the currency world this year,'' said Jen, founder of London-based hedge fund SLJ Macro Partners LLP. "The emerging-market currency weakening trend is now going global.''

Latin America is a particular concern because of the region's high levels of corporate debt, said Jen

Jen recommends selling the real, rupiah and South African rand -- all currencies of commodity exporters, which rely on China for a large chunk of their foreign earnings. 

As well as the drop in raw-materials prices, the prospect of higher interest rates in the U.S. has also drawn away investment, pushing a Bloomberg index of emerging-market exchange rates down 20 percent in the past year. A Latin American measure headed for its 13th monthly loss out of 14, while an Asian gauge plunged Tuesday to its lowest in six years.

And a bit more color from WSJ:

If China’s devaluation deepens, pressure to weaken currencies could become particularly intense in other Asian nations that export large amounts to China or compete with Beijing in other markets. Asian currencies tumbled on Tuesday, notably the South Korean won, Australian dollar and Thai baht, as investors bet China’s move could lead to further monetary easing in those nations. Many Asian nations have cut rates this year and could be forced to take further action in coming months.

“A new theme has emerged—one of Asian currency weakness,” said Wai Ho Leong, an economist in Asia at Barclays.

To be sure, it's all down hill from here, and on that note, we'll reprise our conclusion from last week's "Emerging Market Mayhem" piece: Between an inevitable (if now delayed) Fed hike, stubbornly low commodities prices, the entry of the world's most important economy into the global currency wars, and, perhaps most importantly from a big picture, long-term perspective, a seismic shift in the pace of global demand and trade, we could begin to see a wholesale shift in which the markets formerly known as "emerging" quickly descend into "frontier" status and after that, well, cue the "humanitarian aid" packages.

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Here's a look at the damage since Monday, right before the devaluation:

Is The "Smart Money" Ready To Bet On Gold?

For the last three weeks, gold has experienced something that has never happened before -hedge funds aggregate net position has been short for the first time in history.

However, as Dana Lyons notes, this week saw another 'historic' shift in gold positioning as commercial hedgers shifted to the least hedged since 2001... so the 'fast' money is chasing momentum and the 'smart' money is lifting hedges into them.

Via Dana Lyons' Tumblr,

It’s no secret that commodities have taken a drubbing during the deflationary spiral over the past year. And precious metals have been right up front in this beating. This includes gold, which has lost over 40% of its value the past 4 years.  So needless to say, there has not been much good news on that front. However, as we touched on in a piece two weeks ago, there are signs beginning to pop up that may provide a glimmer of hope for gold bugs. In dollar terms, the price of gold continues to leak, offering very little evidence of any impending stability or bounce. On the other hand, in Euro terms, gold prices reached a key juncturea few weeks ago, as outlined in that previous post. And while no bounce has materialized as of yet, gold has at least held at the level we noted.

Today’s Chart Of The Day offers another hopeful data point for gold bulls. The CFTC tracks the net positioning of various groups of traders in the futures market in a report called the Commitment Of Traders (COT). One such group is called Commercial Hedgers. As their name implies, their main function in the futures market is to hedge. And while the Non-Commercial Speculators tend to be trend-following funds, the Commercial Hedgers’ postions tend to move contrary to price trends. Thus, it is almost always the case that these Hedgers will be correctly positioned – and to an extreme – at major turning points in a market.

How is that relevant for gold? As of this week, Commercial Hedgers are holding the lowest net short position in gold futures since the launch of the gold bull market in 2001.

Does this mean that a reversal higher is imminent in gold? Not necessarily. The thing with COT analysis is that it is difficult to correctly determine when an “extreme” in Hedgers’ positioning will actually result in a price reversal. As is said regarding all sorts of market metrics, an extreme in COT positioning can always get more extreme. Plus, the COT positioning can peak well in advance of the turn. Consider the Hedgers’ maximum net short positioning in gold futures which occurred in December 2009, 21 months – and another 50% gold rally – before prices topped.

Thus, it is tough to time trades with accuracy based on the COT report. However, one thing we can say in the gold bugs’ favor: what had mostly been a headwind for gold for the past decade or so is no longer the case. While it may not make an immediate impact, the “smart money” Commercial Hedgers are now more aligned with them than at any point since the bull market began in 2001.

More from Dana Lyons, JLFMI and My401kPro.

How New Caledonia’s export ban hit Chinese Nickel ore market?

Indonesia introduced an export ban on nickel ore since early 2014, and now, New Caledonia decided to place a nickel ore export ban to China. 

How the ban will affect China’s nickel ore market? 

Last week, foreign media reported the heads of the national and local governments along with mining executives’ vetoed exports of nickel laterites to China because of New Caledonia's long-standing supply agreements with Australia.

“The New Caledonia nickel export to China will have a negligible effect as exports of nickel ore from the country are very small,” SMM’s nickel analyst says. 

China imported 14.57 million ton of nickel ore during the first half of 2015, down 36.87% year-on-year, with 96.79% of imports from the Philippines, and 0.79% from Australia, the second-place supplier, according to China Customs. 

So far, the country has placed no ban on ferronickel export to China. In June, China imported 62,500 ton of ferronickel, with 10,482 ton of imports from New Caledonia, up nearly 3-folds to rank second, according to China Customs.