In stark contrast to their 2010-2011 highs, commodity trading giants Glencore and Noble are each squirming in their own special kind of low right now.
Glencore is currently under pressure from Harris Associates, a U.S.-based activist hedge fund, and its stock has slipped 70% since its 2011 debut, turning millionaires out of its former billionaire execs in the process. Noble meanwhile is bleeding from a nasty attack from Iceberg Research and few other short-sellers, while Standard & Poor’s and Moody’s – both of which have downgraded the firm’s credit to negative – have not been helping at all.
Unfortunately for these two titans of trading, it appears that things could only get worse.
The firms’ debt loads are weighing heavily on them – Glencore, for instance, has the highest debt load among the big miners – while oil – one of their largest businesses – seems to have no place to go but down. The Saudi’s are still trying to drive out the frackers by opening up their spigots, and the Iranians are reportedly set to open theirs as well. The frackers meanwhile are seemingly unready to give up the ghost despite the recent restructurings of Samson Resources and Hercules Offshore, but even if they did, someone else would surely step in their place.
China’s growth outlook is also weighing down on the firms’ other businesses, with copper, iron ore, and various other metals’ prices sinking like the proverbial rock thanks to the nation’s current slowdown.
There is however, some light in the darkness. Activist investors aren’t exactly shorting the companies they’re in, so Harris is betting on a bright future for Glencore. As for Noble, it just found itself a much-needed ally; Fitch Ratings has just proclaimed the firm’s balance sheet as stable, adding that Noble could turn operating cash flow positive in the second-half of this year.
Does that mean a return to their lofty, 2010’s highs? Doubt it. Will they get through this rut? Chances are, yes.
Photo: Neil Kremer