CEO Ivan Glasenberg expects electric car demand to boost the need for copper and the company’s other key metals, and is positioning Glencore accordingly.
Glencore (LSE:GLEN) reported strong first-half results on Thursday (August 10), supported by higher commodities prices. The mining giant expects the electric car revolution to boost demand for copper and the company’s other key metals.
A rebound in metals prices since last year also led Glencore to raise its full-year earnings guidance by $100 million; it now stands between $2.4 and $2.7 billion.
“With higher commodity prices, our marketing business does perform better, more arbitrage opportunities exist,” CEO Ivan Glasenberg said on a conference call, noting that demand for commodities looks strong and new supply appears limited.
Copper prices have surged more than 15 percent since the beginning of the year, and many analysts have an optimistic outlook for the red metal for the rest of 2017. In particular, analysts agree that copper demand from electric cars is expected to soar in the next decade.
That’s because while cars using internal combustion engines require up to 23 kilograms of copper each, a hybrid electric vehicle uses 40 kilograms of copper — nearly double that amount.
The diversified miner seems to be well positioned to take advantage of rising electric vehicle demand, as it is a top producer of copper, cobalt and nickel, all of which are key components of green technology.
“The potential large-scale roll-out of electric vehicles and energy storage systems looks set to unlock material new sources of demand for enabling underlying commodities, including copper, cobalt, zinc and nickel,” Glasenberg said.
In fact, recent research conducted by IDTech for the International Copper Association indicates that copper demand for electric cars and buses will jump from 185,000 tonnes in 2017 to 1.74 million tonnes in 2027.
Earlier this year, Glencore upped its involvement in the copper and cobalt markets by paying $960 million to increase its stakes in Mutanda Mining and Katanga Mining (TSX:KAT), both in the Democratic Republic of Congo, the top-producing cobalt country.
Paul Gait at Bernstein, which has assigned Glencore an “outperform” rating, said the company is almost uniquely positioned in terms of exposure to the electric vehicle market. “Today’s results strengthen our view on the stock,” he said.
Glencore’s share price is up 19.51 percent year-to-date, but declined 2.46 percent on Thursday to close at £333.32 in London.
On Thursday, LME copper was trading flat at $6,457 per tonne after hitting a two-year high of $6,515 earlier in the week.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.