A weak period for commodity markets has proved catastrophic for Glencore (LSE:GLEN) and its share price.
At 329.6p per share, the FTSE 100 company is down 16.3% over the past year. It’s nearly 7% lower today (19 February) after announcing a second straight year of sinking earnings.
Due predominantly to falling coal prices, Glencore said that adjusted EBITDA dropped 16% over the course of 2024, to $14.4bn. The miner also crashed to a loss before tax of $998m from a profit of $5.4bn the year before.
2024 was another year of operational robustness, with production across its mines and smelters, matching forecasts. But that couldn’t stop the bottom line slumping again.
Should I avoid Glencore shares like the plague right now? Or should I capitalise on recent weakness and add them to my portfolio?
Danger ahead
Aside from gold, the last 12 months has been pretty dire for the metals and minerals business. Since January 2024, the Westpac Export Price Index has fallen more than 7%, driven by thumping drops in metallurgical coal and iron ore prices (down 43% and 23%, respectively).
Could business be about to turn higher? As things stand today, I wouldn’t bet the house on it.
As Westpac succinctly commented: “We doubt we will get much more clarity in 2025 with risks of trade wars, shifting priorities around the transition to a low-carbon economy, while geopolitical uncertainties all at play.”
Take copper, for instance, a key commodity for Glencore on the mining and trading side. Crippling trade tariffs and changing green policy in the US could decimate demand from key sectors like electric vehicles (EVs), renewable energy and electronics.
On Tuesday, US President Trump shook markets by threatening 25% tariffs on imports of foreign vehicles and semiconductor chips.
Taking a long-term view
Does all this make Glencore shares extremely unattractive? I’m not so sure.
First, it depends on an investor’s preferred timeframe. The near-term outlook for metal prices is pretty murky, while its coal business could also continue to struggle. But over a longer horizon — say a decade or more — the picture is far more encouraging.
The green economy and digital sector still look poised to expand significantly over the next 10-20 years, boosting industrial metal demand. Other factors, like increased urbanisation, the booming global population, and rising emerging market wealth will also drive consumption.
Glencore’s extensive operations put it in great shape to exploit this opportunity. The firm has more than 60 metal-producing assets spanning the globe and a large marketing division.
A strong balance sheet gives it scope for growth-boosting acquisitions as well. Its net-debt-to-adjusted EBITDA ratio stands at just 0.8.
Too cheap to miss?
It’s also worth considering the cheapness of Glencore shares, and whether current threats are reflected in today’s low share price.
Analysts think annual earnings will rebound 25% in 2025. So the miner trades on an undemanding price-to-earnings (P/E) ratio of 10.9 times.
Meanwhile, its price-to-earnings growth (PEG) ratio sits at 0.4, well within bargain basement territory below 1.
At today’s price, I think the FTSE 100 miner is worth serious consideration. A tasty 5.5% forward dividend yield adds an extra sweetener for investors.
If I didn’t already have significant commodities market exposure through my Rio Tinto holdings, I’d look to add Glencore shares to my own portfolio today.
