Glencore Xstrata posts first full-year figures

Volatile commodity markets form a difficult backdrop for the newly merged mining giant, as it posts $7.7 billion of asset write-downs.

Today’s actions by both Glencore Xstrata and BHP Billiton have seen the total write-downs by mining giants around the world approach the $60 billion level. When two companies of this size merge, it is always difficult to set targets for the initial year; however the consensus was for write-downs of closer to $6 billion. One of the positives to emerge is that the anticipated annual synergy cost-saving of $500 million looks to be well short of the mark, and an eventual figure closer to $1 billion is likely to materialise.

The major driving force behind any move in the company will be global demand for coal, zinc, copper and other materials. This is coupled with the spot prices of these commodities. In turn, these prices have predominantly been driven by both China and the US over the last decade, and it is the health and growth of these economies that are likely to enable prices to rise. Certainly there will be cost-saving measures the firm should be able to introduce, and possibly further synergies that can be found after the full integration of the two companies, but these are far outweighed by the former issues.

Glencore Xstrata plc chart

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