Glencore Reverses Course, Retains Coal Assets Amid Strong Profit Potential

In a surprising turn of events, Glencore, the world’s largest producer of seaborne thermal coal, announced it will retain its thermal and carbon steel materials business, abandoning a proposed demerger that was first suggested in November last year. This decision comes after extensive consultations with shareholders, who ultimately recognized the value these assets bring to Glencore’s portfolio.

In its January-June report, Glencore highlighted the cash-generative capacity of its coal and carbon steel materials business, noting that it significantly enhances the quality and diversity of the company’s portfolio across both commodities and geographies. The firm emphasized that these assets would also broaden its ability to fund copper growth projects and accelerate shareholder returns.

Glencore remains the last major coal producer holding onto thermal coal assets, as other industry giants like Rio Tinto, BHP, Anglo American, and Vale have all divested or spun off their coal operations in recent years. Despite environmental opposition, Glencore is keen to underline the profitability of coal.

While the company plans to gradually wind down its thermal coal operations, it indicated that its transition away from steelmaking coal will proceed at a slower pace. Glencore's decision to retain these assets means it will keep its majority stake in Elk Valley Resources, the coking coal division of Canada’s Teck Resources, which it acquired last month.

This move suggests that Glencore and its shareholders see continued value in investing in coking coal, even as broader industry investment has slowed due to pressure from environmental groups and financial institutions. Nonetheless, the elevated coal prices in recent years have enabled key producers to self-fund growth and new projects through reinvested profits.

Glencore also reported that it sold 30 million tonnes of thermal coal in the first half of 2024, a 17% decrease from the previous year, attributed to weak European demand and high gas inventories. Additionally, thermal coal production fell by 2.8 million tonnes to 45.8 million tonnes in the same period, reflecting reduced output in Australia and South Africa.

Overall, Glencore’s coal production, including coking and semi-soft coals from Australia, Colombia, and South Africa, declined by 7% year-on-year to 50.6 million tonnes in the first half of 2024.