Glencore's Profit Slide: Navigating the Coal and Cobalt Downturn

Glencore, the world's largest integrated natural resources company, has reported a significant decline in profits as coal and cobalt prices slumped in 2023. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by 50% year-on-year to $17.1 billion, while revenue dipped by 15% to $217.83 billion. This downturn was primarily due to the rebalancing and normalization of international energy trade flows, particularly in coal and LNG markets, and to a lesser extent, oil, where prices saw a material decline.

Glencore's diversified business model has helped it navigate the recent downturn in coal and cobalt prices by spreading risk across various commodities and sectors. The company's portfolio includes a wide range of commodities, such as copper, zinc, nickel, and vanadium, as well as energy products like oil, coal, and LNG. Additionally, Glencore's marketing and industrial segments have proven adept in a range of market conditions, providing further resilience.

To mitigate the impact of the coal and cobalt price slump, Glencore has taken several strategic steps:

1. Investment in Renewable Energy: Glencore plans to increase its investment in renewable energy projects, aiming to reduce its reliance on fossil fuels. This shift will help the company meet its goal of achieving net-zero greenhouse gas emissions by 2050.
2. Carbon Capture and Storage (CCS): Glencore is exploring the use of CCS technologies to reduce emissions from its operations. By capturing and storing carbon dioxide emissions, the company can significantly lower its carbon footprint.
3. Recycling and Circular Economy: Glencore is focusing on the recycling business, particularly in the area of electronics and automotive batteries. By recovering rare metals such as lithium and cobalt from used lithium-ion batteries, the company can reduce resource depletion and contribute to a circular economy.
4. Transition to Cleaner Energy Sources: Glencore is diversifying its energy portfolio by investing in cleaner energy sources like natural gas and hydroelectric power. This shift will help the company reduce its emissions while maintaining its energy production capabilities.

Glencore's acquisition of a 77% effective interest in Elk Valley Resources (EVR) for $6.93 billion in cash is a strategic move that aligns with the company's long-term strategy to support the transition to a low-carbon economy while meeting the world's ongoing need for resources. The acquisition of EVR, expected to close no later than Q3 2024, presents several opportunities for Glencore's growth and value creation, including complementing existing thermal and steelmaking coal production, supporting renewable energy infrastructure, and potentially demerging its coal and carbon steel materials business.

In conclusion, Glencore's profit slide in 2023 is a result of the coal and cobalt price slump, but the company's diversified business model and strategic initiatives position it well to navigate the downturn and continue its growth trajectory. By investing in renewable energy, CCS technologies, recycling, and cleaner energy sources, Glencore can mitigate the risks associated with climate change and create new opportunities for growth and value creation.