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Glencore strategy

February 15, 2017

Readers will undoubtedly recall the recent involvement of Glencore, via financial smoke and mirrors, with Russia’s Rosneft and part of a 19.5% stake therein.

Quite how that will now work out regarding continuing sanctions, a White House currently (albeit perhaps temporarily) seemingly nothing short of dysfunctional and already losing senior appointees due to Russian “issues” remains to be seen.

However, Glencore also operates in Ukraine – on an increasingly diminishing scale.

Whether the tumult of 2014 within Ukraine was the cause of a decision to, if not quite exit, then certainly scale back operations in the country is perhaps something to ponder vis a vis a clear decision to globally consolidate rather than expand via “big deals” for corporate financial reasons.  (Less than a year before the Rosneft deal, Glencore went to its shareholders to raise funds.)

Where once it owned close to 30 agri businesses, and whatever the reason for the Glencore decision, ever since 2014 it has been gradually but significantly reducing its operations in Ukraine.  Until very recently almost untouched are the assets in the sea port cities of Odessa and Mykolaiv.  Other regions have seen a complete withdrawal.  Mykolaiv is now witnessing a Glencore withdrawal too.

The latest and last beneficiary  of Glencore owned grain elevators being sold off is Prometheous (owned by Rafaello Goroyan) which now hold 18 grain elevators having taken the last 6 owned by Glencore (or a Glencore subsidiary to be precise).

(Previous purchasers of Glenccore agri assets were companies within the Privat empire and Novaagro in Kharkiv (owned by Sergey Polumysny)

Although Glencore still has some assets in Ukraine and continues to act as a commodities trader in the country, a reader may ponder just what the Glencore “grand plan” is.  Agriculture will definitely overtake the metals industry in the Ukrainian economic mix (perhaps it already has) becoming the largest single industry (and perhaps employer).  The only way is “Up” for the foreseeable future for Ukrainian agriculture.

Yet despite Glencore’s obvious interests in mining in Russia, the decision to expand its investment in Russian oil at a time when sanctions were and remain in place is also interesting.  It was presumably based on an expectation of sanctions ending fairly swiftly with a Trump White House.

However following the Flynn affair it will be politically difficult to cancel any Russian sanctions any time soon for President Trump (and it would seem the Flynn affair makes things easier for Senators like McCain to codify those sanctions making it almost impossible if that happens).

As the Flynn affair is without doubt not the only self-inflicted Russian issue that will again bite the current Trump White House Administration over the next 6 months (sooner or later somebody will look at Rybolovlev far more closely) it may yet prove that President Trump will actually harden the US position against The Kremlin through having no other political room to maneuver.

Nevertheless, somebody at Glencore knows what they’re doing and must see a slightly different picture to most of us – which is perhaps why it makes $ billions and we don’t!

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