Glencore Stock Price Jumps 15% Today but Troubles Persist

The Glencore stock price opened up 15% at 109.15 pence in London on Monday. That followed a 72% intraday surge for Glencore stock on the Hong Kong stock exchange.

Shares were higher today as Glencore Plc. (LON: GLEN) continues to reassure investors its finances are solid.

The sharp rise in the Glencore stock price prompted the mining and commodity trading giant to issue a statement stating there was no news on its part to explain the blistering movement. Nearly 5 million shares had been traded by mid-afternoon in Hong Kong Monday. Typical volume is under 1 million.

The Glencore stock price calmed down after the announcement. Shares ended Monday up roughly 18% in Hong Kong.Glencore Stock Price

The company has been in damage control mode since last week amid a 29% single-day plunge and increasing concerns over the company's debt-laden balance sheet.

In his first public remarks since the Glencore stock price plunge last week, CEO Ivan Glasenberg blamed hedge funds, not tumbling commodity prices, for the company's crisis. Glasenberg accused hedge funds for artificially driving down copper prices. He said copper, the third most widely used industrial metal next to aluminum and iron, would rebound from its 25% year-to-date slump.

"The funds are playing the commodity cycle," Glasenberg said at the Financial Times Africa Summit in London. "But in the end the fundamentals will prevail." Glasenberg added that "demand is still there."

Glencore is particularly exposed to sliding copper prices. The metal is its biggest earnings driver, accounting for about one-third of Glencore's revenue. Glencore produced 730,900 tons of copper in the first half of 2015.

A 10% decline in copper would erase about $1 billion from Glencore's adjusted earnings, according to estimates by Liberum Capital. On the other hand, a 10% gain would be a boon for Glencore and help ease fears about its high debt levels.

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Glencore has suspended operations at two African copper mines, which will remove some 400,000 tons of the metal from the market. The move, according to Glasenberg, will have a positive impact on prices.

Still, that would just alleviate one issue plaguing Glencore. The troubles for the company, and the Glencore stock price, run much deeper...

Doubts, Debts, and Defaults

In an effort to shore up its balance sheet and reduce debt by at least $10 billion, Glencore has implemented sharp spending cuts, a $2.5 billion stock sale, and it has stopped dividend payments. The company is also shopping parts of its agriculture business.

Glencore is sitting on roughly $30 billion in net debt and about $18 billion in short-term credit used for its commodity trading arm. Worries continue to mount that Glencore is facing a credit rating downgrade. Worse, fears are simmering that the company may even be insolvent.

The company lost $675 million in the first half of 2015. The Glencore stock price, meanwhile, is down about 65% year to date. The stock has been on a downward trend since its $29.5 billion 2013 merger with Xstrata, one of the world's largest mining companies.

Money Morning Global Credit Strategist Michael Lewitt says the Glencore situation is still playing out. Lewitt likens it to an "eerie, picture-perfect replay of what happened in the AIG meltdown of 2008."

Any rebound in the Glencore stock price won't last, Lewitt says. According to him, investors can't flee the stock fast enough.

What's even more troubling is how Glencore is an essential link in a networked global financial system.

"It is an important counterparty to many of the largest financial institutions in the world, who are in turn counterparties to other financial institutions, who are in turn counterparties in an endless chain of relationships that keep the global markets operating," Lewitt said.

And that could lead to a Lehman Brothers-like collapse from Glencore. Here's the full story...

Stay informed on what's going on in the markets by following us on Twitter @moneymorning.

Related Articles: