November 17, 2015 / 5:51 PM / 3 years ago

Copper price slump could create headwinds for Glencore's debt plan

JOHANNESBURG/LONDON (Reuters) - Further falls in copper prices might yet undermine the fightback mounted by mining and trading company Glencore after its shares tumbled to record lows this year, analysts said.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in Baar, Switzerland, September 30, 2015. REUTERS/Arnd Wiegmann

London Metal Exchange benchmark copper plunged to $4,590 a tonne on Tuesday, its lowest in more than six years, as fears about slowing demand growth in top consumer China and a higher dollar fueled negative sentiment.

Glencore saw its shares hit a record low at 66.67 pence in September over concerns it was not doing enough to cut its debt to withstand a prolonged fall in copper - its key metal.

Swiss-based Glencore has pledged to cut its net debt from nearly $30 billion to $20 billion by the end of 2016, a plan the company said would allow it withstand copper prices of $4,000 a tonne, as expected by some market players.

The company has also cut copper output to help lift prices.

Glencore’s shares - down 70 percent so far this year - have recovered from record lows but the company is still the biggest loser on blue-chip FTSE 100 index in the year to date as weaker metal prices remain a nagging concern.

“Copper is one of the biggest earners drivers for the group so this weakness we are seeing in the copper prices certainly does create headwinds for the company as it seek to cut its debt,” Macquarie analyst Alon Olsha said.

“But the scope for the company to beat its debt reduction target is very high and that should offset some of the weakness we are seeing on the copper price.”

Glencore shares rose to 129.90 pence earlier this month after the company said it was on track with its debt reduction plan but have since retreated. They were down 1.3 percent at 88 pence as of 1105 ET on Tuesday.

“They are certainly going to find a lot of headwind as they head into 2016. Given the macro environment in which they are going to be trading, it doesn’t look a particularly favorable environment for them,” Commerzbank economist Peter Dixon said.

The rout in commodity prices is putting pressure on stocks across the mining sector, prompting reductions in capital expenditure, operational costs and jobs.

The STOXX Europe 600 Basic Resources index has slumped 26 percent so far this year, the worst sectoral performer in Europe.

“At the moment, we don’t promote the mining sector,” ABN-AMRO Private Banking chief investment officer Didier Duret said.

“We remain ‘neutral’ on miners as the sector consolidation is still underway. When we have more clarity about the shape of the global economic recovery, it might be a sector to look at.”

Writing by Olivia Kumwenda-Mtambo; Editing by Veronica Brown

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