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Shares in Glencore plummet over 25% as worries grow over commodities prices

by , 29 September 2015

Yesterday, shareholders in Glencore watched in amazement as shares plunged over 25% in London and Johannesburg.

The fall continued this morning in Hong Kong, where shares shed over 27%.

So what's going on with Glencore?

Let's take a closer look…

Shares in Glencore bounced higher following yesterday’s fall

This morning, shares in Glencore [JSE:GLN] climbed back over 5% in earlier trading following the steep plunge in its shares in the UK and SA yesterday.

Shares in Glencore are down 73.61% “since listing in November” on the JSE, notes MoneyWeb. Just this month, shares are down “over 40%”.

Analysts believe the company could encounter “severe problems” if it doesn’t reduce its debt and the prices of commodities “don’t recover,” reports the BBC. Analysts at Citigroup said the selloff in the commodity group in “overdone”.

The majority of commodity-based businesses have suffered thanks to commodity prices trading at “multi-year lows,” says Fin24. But Glencore is paying the price due to “its huge $30 billion debt load”.

What’s behind Glencore’s woes?

There are three main factors pulling Glencore down, explains IOL:

  1. Very low commodity prices;
  2. Very high levels of debt; and
  3. Weak growth in China.

JC Louw, the chief investment officer at Contego, told MoneyWeb that Glencore’s “downside risk is still high”. Worrying is the “potential downgrade of its debt by rating agencies”.

Analysts at Investec said that “without major restructuring,” the company is in trouble, adds the BBC.

This followed Investec’s research note that said it questions “how much value will be left for equity holders if commodity prices do not improve,” says Fin24.

At time of writing, shares in Glencore were trading 3.83% higher at R16.

So Glencore could face severe strife ahead, particularly if rating agencies downgrade its debt. The company will be hoping for a swift recovery in commodity prices.

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Shares in Glencore plummet over 25% as worries grow over commodities prices
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