Glencor - energy crisis 'safe haven' ?

Glencore (GLEN.UK)'s stock price is gaining nearly 4% today. The stock price rose in the face of Gazprom withholding supplies; the NordStream pipeline remains closed. The Swiss resource company may benefit from rising prices and demand for coal which is returning to favor as the picture of the energy crisis in Europe intensifies:

• High coal prices could support bulls on Glencore shares and contribute to the perception that the company is a 'safe haven' in an environment of raging energy commodity prices;
• It seems that as long as the war in Ukraine continues and sanctions on Russian coal remain in place, there is little indication that the price of the strategic commodity coal has become will fall although the weather (harsh or mild winter) may have an impact on its quotations. As analysts at London-based RBC Capital Markets point out, the Russian invasion has changed the global energy balance, which should support Glencore's sales;
• The company has interests in resource extraction, precious metals, minerals and recycling. In 2021, the minerals and metals sector generated the main portion of profits. This year, however, the metals segment's performance may be overshadowed by profits from the energy sector, particularly coal;
• Many of the company's mined non-energy commodities including nickel, copper and cobalt are essential to the energy transition (away from fossil fuels) which positions the company well even in the event of falling coal prices;
• Over the course of this year, Glencore's shares, including dividends, have yielded more than 20% for investors against double-digit declines in major stock indexes;
• The company recently shared a record report for the first half of the year. EBITDA was $18.9 billion, $4.5 billion was returned to shareholders through dividends and share repurchases. Glencore's energy sector earned $12.6 billion in the first half of the year, exceeding results for the full year 2021. With coal prices rising over the past 10 months (close to $400 per metric ton vs. $150 in November 2021), the company has a chance to continue to beat analysts' expectations and benefit from its raw material reserves;

"Thermal coal prices continue to rise due to supply concerns and as the Russian-Ukrainian war reinforces the need for energy security (...) The upcoming EU ban on Russian imports is another factor supporting thermal coal prices." - Mornigstar analysts commented on the Russian coal embargo. 

• LNG exports from the US may not be enough for Europe, coal seems to be a short-term necessity for many countries. Unstable energy sources like solar panels and wind power cannot cover the gap caused by Russia's withdrawal from Europe's raw material architecture;
• The global energy system requires a multi-year and expensive transition for humanity to move away from fossil fuels, giving Glencore at least many years of the benefits of higher energy commodity prices. Currently, geopolitical castling has halted the transition. It may take many years to equalize supply and demand, and reconciliation between the West and the Kremlin's expansive policies appears to be invisible on the horizon under current conditions;
• At the same time, if Europe economically 'softens' during the autumn-winter period, and a pinned-down Ukraine agrees to peace, coal prices with resumed supplies from Russia could fall significantly. Such a scenario, in light of Russia's actions, currently seems unlikely, the polyracialization of East and West becoming increasingly apparent as Russia tightens ties with China, which is under the watchful eye of the US. At the same time, Ukraine is holding back the Russians in the east of the country. A counteroffensive by Ukrainian troops is still underway, and some towns have already been liberated. Ukraine's successes could legitimize the scenario of a long-lasting, frozen 'war of attrition.

Glencore (GLEN.UK) share price, W1 interval. Looking at the broader picture, the price is moving in a strong uptrend and has nearly 500% hit from the Covidian bottom. The prospect of a global recession projecting declines in commodity prices has slightly depressed the price of the stock. The autumn-winter period may support the bulls in the face of the energy crisis in Europe and rising energy commodity prices. The company has relatively 'healthy' fundamental ratios. The P/E ratio is 4.7 versus an average of 14.7 for the FTSE index. The price-to-book ratio is 1.56. Source: xStation5