GLEN Glencore Plc

By David Hodari

Global mining giant Glencore reported its 2017 annual results Wednesday, more than quadrupling its full-year net income to $5.8 billion, revealing a dividend of $0.20 a share. Here are remarks on metals from the company's earnings report:

On its operating environment:

"...positive momentum continued through 2017, resulting in prolonged outperformance of Glencore's key commodities versus the broader markets. Concerns of tightening financial conditions in China during the second quarter proved to be short-lived, with commodities rallying once again through the second half of the year. Strong economic performance in both major developing and developed markets has underpinned supportive commodity demand conditions. The electric vehicle upheaval continues to unfold, with the scale of market penetration and investment, by battery and automotive manufacturers and infrastructure players, adjusting progressively upwards..."

On electric vehicles:

"Accelerating electric-vehicle adoption requires an energy and mobility transformation that is forecast to unlock material new sources of demand for the enabling underlying commodities including copper, nickel and cobalt. We recently commissioned an independent study to gauge the potential incremental demand for these commodities under the Electric Vehicles Initiative scenario of 30% electric vehicle market share by 2030. The findings suggest an additional 4.1 million tons of copper, 1.1 million tons of nickel and 314,000 tons of cobalt supply will be required by 2030. These potentially significant new demand sources offer compelling fundamentals, particularly when coupled with persistent supply challenges."

On copper:

"In 2017, the copper price [increased] 27% year-over-year. The rally was most apparent in the second half, with a 2017 high of $7,254/t in late December marking levels last seen in early 2014. Over the year, synchronised global growth fuelled healthy demand in major copper consuming regions. Mine supply challenges continued to exceed market expectations, resulting in a c.2% contraction in mined volumes year-on-year, the first decline in over 15 years.

Copper scrap flows played an important role in the first half of the year, as higher prices triggered the release of stockpiled scrap into the market and contributed to a short period of apparent demand weakness. Combined with misplaced fears of tightening financial conditions in China, this resulted in a temporary pullback in the price rally. Copper scrap inventory reverted to normalised levels by mid-year, with drawdowns in copper units across the value chain through to year-end.

...the copper market is likely to remain in substantial supply deficit, which, if it occurs, will in turn result in further inventory drawdowns."

On zinc:

"In 2017, the zinc price recorded a 38% year-over-year increase... Going forward, higher prices will incentivize higher concentrate production, easing TCs in the mid-term and eventually resulting in higher metal production. However, the environmental constraints in China and the slower-than-anticipated pace of mine restarts (or new mines) means that the current zinc tightness may remain for some time. As there is also a time lag before concentrates units convert into metal units, we expect the current strong pricing environment to be supported in the near to mid-term."

On nickel:

In 2017, a record supply deficit was evident in the nickel market, as strong synchronised demand growth across all regions and industry segments offset supply gains. Such positive fundamentals, backed by strong physical activity and significant draws in global inventory, drove nickel premiums to record highs... Consequently, the nickel market remained in material supply deficit for a second year running, enabling global stocks to draw down quickly despite headline LME inventory suggesting otherwise. Even with a conservative forecast for 2018 demand, the outlook is for continued sizeable deficits and further draws in primary nickel stocks. Forecast supply increases are based on Indonesia exporting more nickel units in ore or NPI, with production elsewhere expected to be flat or fall."

On agricultural commodities markets:

"The grain and oilseed markets were again well supplied, low priced and lacked volatility, which in turn limited arbitrage opportunities. Despite a brief U.S. weather concern in late June, impacting primarily spring wheat, which proved to be less significant than initially thought, global crops were problem free with Russia, Australia (basis late 2016 harvest carried over) and Brazil all recording historically high production."

Write to David Hodari at david.hodari@wsj.com

(END) Dow Jones Newswires

February 21, 2018 10:36 ET (15:36 GMT)

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