Glencore PLC (LSE:GLEN) will cut production at its Cerrejón thermal coal mine in Colombia by as much as 10 million tonnes this year, a reduction of roughly 8% of its total thermal coal output.
The decision, announced on Tuesday, is in response to what the company called “unsustainable prices” in the seaborne coal market.
According to UBS, the move will take some pressure off coal prices, but further supply cuts may still be needed to stabilise the market.
Cerrejón produced 19 million tonnes in 2024, generating $222m in earnings before interest, tax, depreciation and amortisation, before $414m in capital expenditure. The bank estimates the curtailment will reduce global supply of high-calorific value coal by around 2%.
Glencore’s shares have underperformed other large mining groups by about 15% over the past three months. UBS sees this as largely driven by weakness in thermal and metallurgical coal markets, with the group’s spot-free cash flow yield now around 8%.
Despite this, the bank believes Glencore’s risk-reward profile remains attractive and points to a number of potential short-term catalysts.
These include progress on the company’s $1bn share buyback, which is currently removing about 3 million shares a day from the market and is expected to complete by mid-July.
UBS also sees scope for a further $1–2bn to be returned to shareholders in the second half, depending on commodity prices and free cash flow.
Another key development is the planned merger between Bunge and Viterra. Once completed, Glencore will receive $1bn in cash and about $2.4bn in Bunge shares. The company has said it may use non-recourse debt secured on those shares to accelerate its buyback.
In commodities, UBS sees potential upside in copper and cobalt markets. A recent surge in cobalt prices - up over 50% in the past month - has been driven by export restrictions from the Democratic Republic of Congo.
Meanwhile, copper markets remain tight, with Glencore’s own smelting operations among those affected by reduced treatment charges.
In late morning trading, the stock was up 1% at 307.75p.