Commodity rout shakes Glencore

A THIRD day of vicious turbulence in commodity trading saw investors sell out of energy and metals yesterday, causing market turmoil and even putting pressure on Glencore’s giant flotation plans.

Signs that demand for raw materials is slowing in the world’s biggest industrial economies spooked investors, pushing Brent crude down three per cent to $112.33 (£68.50) per barrel.

The sell-off was worst in smaller markets such as silver, which fell 17 per cent amid high volatility.

A bearish prognosis from the International Energy Agency (IEA) also added to downward pressure yesterday. The IEA lowered it forecasts for global oil demand growth in 2011 for the first time, to 1.29m barrels per day (bpd) this year, from 1.43m bpd previously.

The FTSE 100’s mining giants were hit hard in the turbulence, with many closing more than two per cent lower. Fresnillo, the world’s largest silver producer, lost 7.6 per cent of its market value, while oilfield services supplier Wood Group fell by 3.3 per cent.

The rout provoked City speculation that commodities colossus Glencore would be forced to re-price or even pull its $11bn blockbuster flotation in London and Hong Kong.

Such fears were brushed aside by chief executive Ivan Glasenberg, who, questioned about the recent price fall in commodities at an investor conference in Hong Kong, said it was simply “due to some froth” in the market.

One of those involved closely with the flotation plans said: “There’s no chance of this deal collapsing. It’s been oversubscribed at every level.

“Glencore is determined to keep a healthy aftermarket, though, so where the price ends up will be its own decision next week.”

Manoj Ladwa, senior trader at ETX Capital, said: “Anyone looking at Glencore to invest in wouldn’t be just looking at commodity prices for the next few days or so. They’ll be looking at a five or ten year period.”

Despite the jitters, Glencore pressed ahead with pricing the Hong Kong portion of its listing.

It said it would sell 31.25m shares at a range between HK$61.24 (£4.80) and HK$79.18. The offer, which represents 2.5 per cent of the total sale, would net the trading giant up to HK$2.47bn.

“The demand for commodities across Asia has played a key role in the growth of Glencore,” said Glasenberg.

“A secondary listing in Hong Kong will enable us to build long-term mutually beneficial relationships with Hong Kong investors, as we have with customers, suppliers and capital providers worldwide over the years.”

Additional reporting by Alison Lock and Marion Dakers