The FTSE 100 has staged a strong rebound since the tariff-induced sell-off in April. Among its top performers, commodities giant Glencore (LSE: GLEN) has surged 70% over the past six months. With both copper and coal production on track to hit full-year targets, the stage could be set for further gains.
Q3 production
After a lacklustre first half, analysts had begun to question whether it could meet its full-year production targets. But the company’s latest update appears to have silenced the sceptics.
At the half-year stage in August, management noted that copper output would be weighted roughly 40:60 between H1 and H2, reflecting temporary but largely expected operational challenges.
These included mine sequencing, lower ore grades, and water constraints – all short-term factors that were well understood by the market. Stripping these out, its industrial metals division remains a $4bn EBITDA (earnings before income tax, depreciation and amortisation) business.
In fact, such short-term production constraints could ultimately work in the miner’s favour. Mining is a difficult business, but limited supply growth supports the longer-term investment case for owning large copper producers.
Copper mania
I remain convinced that a global copper deficit is on the horizon. Demand for the metal is building on multiple fronts. Traditionally, this has been driven by the green energy transition – EVs wind turbines, and solar projects. But two new megatrends could eclipse everything that came before.
First, the AI-driven capital expenditure boom is sending electricity demand through the roof and exposing the limitations of ageing grid infrastructure. As generative AI models grow ever more powerful, their impact on energy consumption is becoming impossible to ignore. In the US state of Indiana, for example, electricity prices this summer were 17% higher than a year earlier.
Second, rising global defence spending is adding another layer of demand. Copper plays a vital role in advanced military hardware, and with the US pushing NATO members to raise defence spending towards 5% of GDP, appetite for the red metal looks set to strengthen further.
Coal prices
Last year, Glencore reported losses of $1.6bn, and in the first half of this year it has already accumulated a further -$655m. A large portion of this can be traced to weak prices for both thermal and steelmaking coal.
The miner has made clear its intention to keep coal as a core part of its portfolio – a stance few peers have been willing to take. But with prices down roughly 40% over the past 18 months, that commitment is becoming increasingly painful.
At its Cerrejón coal complex in Colombia, voluntary production cuts have contributed to a 150% widening in earnings per share losses. Meanwhile, Australia is the world’s largest coal exporter and a key operating base for Glencore. But the sector there is approaching what many now describe as a crisis point.
Bottom line
Copper sits at the heart of Glencore’s future. By 2030, production is forecast to more than double to 2m tonnes. However, even that increased contribution to supply will still fall well short of meeting surging global demand. Although I expect the share price to remain volatile, I am unfazed, which is why I recently added more to my holding.
