07 February 2012

China SignPost™ (洞察中国) #53–Cornering Commodities Markets: For China, Xstrata/Glencore deal would have larger impact than Facebook IPO

Gabe Collins and Andrew Erickson, “Cornering Commodities Markets: For China, Xstrata/Glencore deal would have larger impact than Facebook IPO,” China SignPost™ (洞察中国), No. 53 (7 February 2012).

China SignPost™ 洞察中国–“Clear, high-impact China analysis.”©

Facebook’s plans to go public are a headline grabber, but in terms of fundamental global economic impact, the proposed US$90 billion merger between two Zug, Switzerland-based firms—mining giant Xstrata and premier global commodity trader Glencore—deserves much closer attention. People can live well without a Facebook account, but life gets a lot harder if prices for the copper that brings power to their computer suddenly climb when a large miner/trader acquires the potential capacity to squeeze the market.

Combining and integrating the two firms’ global network of mines, smelters, warehouses, transportation assets, and savvy traders creates a range of opportunities for the new company to use its market intelligence and sheer size to extract premium prices from consumers of the vital raw materials it produces. Chinese commodity buyers could face a company with great influence in the copper, lead, zinc, nickel, cobalt, and seaborne coal markets. The combined Xstrata/Glencore entity would control an estimated 7.5% of global copper production, 8.8% of seaborne thermal coal supplies, 10.2% of global zinc production, and 10.5% of global seaborne coking coal supplies….