The journey for the commodity market has been laden with hurdles, mirroring the challenging path of Glencore plc (JSE: GLN), whose shares have experienced a notable 17% decline year to date. Despite hopes for a turnaround, the company’s latest earnings report failed to provide the much-needed respite. With revenue slipping from $255.98 billion to $217.83 billion and net profit plummeting by a staggering 75% to $4.28 billion, Glencore found itself grappling with a harsh reality.
The harsh realities of the market were starkly evident as adjusted EBITDA tumbled from $34.06 billion to $17.10 billion, reflecting the broader decline in commodity prices. The once-soaring prices of coal and liquefied natural gas, which had reached unprecedented heights during Russia’s invasion of Ukraine in 2022, now faced a stark reversal. The normalization of the energy market and the impact of higher interest rates on consumer and industrial demand added further strain to Glencore’s operations.
In response to the substantial earnings downturn, Glencore decided to slash its shareholder payouts from $7.1 billion in 2022 to a mere $1.6 billion for 2023. This strategic move aimed to channel the remaining cash towards debt repayment linked to its acquisition of Teck’s Elk Valley Resources. Despite the sombre financial outlook, a glimmer of hope persists within the company. Glencore points towards potential interest rate cuts and an ensuing economic upturn as catalysts for recovery as they navigate the path ahead into 2024.
Technical
The price has fallen into a steep descending channel on the daily chart. With an initial selloff following the earnings release, the dynamic support of the channel triggered a retracement, as the price slipped into oversold conditions, reflected in the RSI. The 25-SMA (green line) has fallen below the 50-SMA (blue line) and 100-SMA (orange line), reflecting the bearish momentum tilt.
If support at R92.41 can hold in the upcoming session, the price could test the dynamic channel resistance for a potential breakout. The first hurdle to the bulls would be R96.32, where a pivot could occur to retest the breakout. However, if the price continues to move higher, the Fibonacci midpoint at R100.08 could become important before the 61.8% Fibonacci golden ratio provides psychological resistance where the 50-SMA and 100-SMA converge.
Conversely, if support at R92.41 fails, the price could move back down toward R88.33, where support was found in the Wednesday session. If the bears manage to clear the hurdle this time around, the downturn could continue toward neckline support at R84.30 in the longer term.
Summary
Glencore’s struggles continued following its latest earnings report, where its profit was halved, forcing the company to slash its dividend payout to shareholders. However, a glimmer of hope emerged, as lower interest rates and a potential economic uptick could pave the way for the company going forward.
Sources: Koyfin, Tradingview, Reuters, Glencore plc
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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