Buy on the dips.
That’s what they say.
And if ever there was a dip, it’s been in the last few years and it’s been in coal.
No one wants coal.
Not activists, not governments, not electorates, not companies. And not even markets.
Or so, the opinion formers in the Western media would have us believe.
But Glencore doesn’t believe it.
Glencore is buying on the dip. And in some style.
In a sector that’s been somewhat rudderless and stagnant for a few good years now, both in terms of growth and deal flow, Glencore has cut the largest deal in recent history, paying US$9bn for the coal business of Teck Resources, formerly known as Teck Cominco, in a deal that also involves Korean steel giant POSCO and Nippon Steel of Japan.
That’s one clue, right there.
It may be that coal as a source of power generation is going out of style but for some of the world’s major manufacturing processes, it will remain essential.
The likes of POSCO and Nippon Steel are at least somewhat more immune to the ESG pressures being brought to bear by the likes of Greta Thunberg.
Glencore’s calculation is that although such speech and ideas may be driving a lot of Western policy-making, in the end, these pressures will dissipate.
It’s not too long ago that Glencore strategy teams were routinely referred to as “the smartest guys in the room.” Some of that lustre has worn off, given that Glencore's share price performance has been nothing but pedestrian.
But there is no doubt that the thinking at Glencore has always been independent of mainstream thinking. Historically the company has cut deals where it was thought deals couldn’t be done. Sometimes it has reaped negative consequences as a result, and sometimes it hasn’t.
But it has never been afraid to go where no one else would.
And that’s what’s marked it out.
So, while Teck runs for cover, exiting the coal business in a tidy enough fashion, after some months of wrangling, Glencore is doubling down.
And who is it doubling down with? – Two of the biggest steelmakers in the world.
Where’s Tata while all this is going on?
Or the Russians?
Not worried about climate justice on occupied land, that’s for sure. At least not at the boardroom level.
India continues to build coal-fired power plants at an incredible rate, so the Tata people don’t have any real worries in their own backyard. And there is plenty of coal in India too, although the mining industry there remains opaque and is allegedly riddled with corruption.
The Japanese and the Koreans have historically been more resource-constrained, which is perhaps why they are more willing to come out into the open with Glencore.
Although the PR optics don’t look good from the standard narrative that runs in the Western press, its potential impact remains an open question. Glencore has its UK listing, so it is vulnerable on that score. But the London Stock Exchange isn’t the force it once was in global markets, what with the carnage of 2008 and Brexit that followed a few years later.
If Glencore is chased out of town for bad ESG, how bad would it really be? It would sit nursing its wounds in its traditional Swiss eyrie, and comparing notes with Trafigura, another major commodities trading company, that in the past, exhibited open contempt for prevailing narratives.
The facile point is that in a world of short attention spans, Western politics has, in any case, lost its way, and looks increasingly likely to plunge the world into a succession of major conflicts that no one wants and no populace wants to fight.
The more serious point is that Glencore is doing what it does best: business in the commodities space. Overarching narratives of the rights and wrongs of this and that will come and go. But if you can buy on the dips and – whisper it softly – sell on the highs, you are doing what your shareholders pay you to do.