In last trading session, the stock price of Glencore International PLC, St. Helier (OTCMKTS:GLNCY) declined more than 27% to close the trading session at $2.07. The decline came at a share volume of 2.74 million compared to monthly average share volume of 1.22 million. This sharp plunge is casting a dark shadow on the innovative corporate structure designed by company’s CEO, Ivan Glasenberg.
The growing concerns
Declining commodity prices, led by an economic downturn in China, are squeezing the profits out of Glencore International. That is resulting in the concerns that company’s high debt load will attract downgrades from credit-ratings entities and hurt its debt-based trading operations. The combination of lower earnings and high debt are the major factors behind the decline in the stock.
Investors believed that company’s trading operations would offer a cushion for earnings in economic downturn, making it attractive buy compared to competitors. In its IPO prospectus, Glencore International stated that its trading operations are less dependent on commodity prices compared to its industrial operations, making earnings less volatile compared to earnings of pure producers of mining, energy and metal products.
Glencore has eroded a large part of its value as prices for its major products from coal to copper to oil have made multiyear lows in 2015. The company promoted the trading operations as being a less cyclical operation that would support the cyclical mining business. However, the cyclicality of the mining segment has compromised company’s viability as a trading firm.
The company’s strength had been trading since it was established in the 1970s. Some investors play down existing issues about the company and highlights bafflement over the sharp selloff. They mention robust results from company’s traders, who recorded $1.1 billion in profit in 1H2015. The management earlier stated that the debt-reduction program will protect company against a downturn in commodity prices.
Glencore International PLC, St. Helier (OTCMKTS:GLNCY) has been in the grip of a long term bear market and now the bearish momentum is accelerating as evident from the huge loss of 27.87% incurred in the first trading session of the week. The volume of the day at 2.7 million was roughly double the daily average of 1.3 million, indicating the intensity f the selloff on the part of the disappointed investors. Till now, the decline was taking place in an organized manner, as it was perfectly contained in a channel but the downside break may drag the price below $2.00 soon.