Glencore’s coal exposure could become a tailwind again, says Citi Proactive uses images sourced from Shutterstock
Glencore PLC (LSE:GLEN)recent share price weakness may be overlooking a familiar source of earnings upside: coal.
Shares in the mining and commodities trading group have fallen about 10% so far this month even though prices across its commodity basket have risen around 4%, according to Citi, which argues that investors are underestimating the potential for another rally in coal prices.
The broker said concerns over falling gas prices and reports that China could restart some suspended coal mines have distracted the market from a tightening global supply picture.
Instead, Citi pointed to what it called “structurally lower” thermal coal exports from Indonesia, dwindling coal inventories at Indian independent power producers and the possibility that El Niño-related weather disruption could extend into 2027.
The bank also highlighted the potential impact of lower Iranian steel production on coking coal markets, although it believes the implications for thermal coal are being largely ignored.
The note’s title, “’22 redux for coal”, is a reference to the sharp rally in coal prices following Russia’s invasion of Ukraine in 2022, when supply disruptions sent energy markets soaring and turned Glencore’s coal division into a cash machine.
If thermal coal prices move higher again, Citi believes Glencore’s earnings leverage to the commodity remains underappreciated by investors.