Ivan Glasenberg is no altruist. So when Glencore said on Wednesday that it would cap its global coal output at its current capacity, it probably needs to be viewed with somewhat greater cynicism than the euphoric response of the anti-coal lobby might suggest.
While the decision was hailed by climate activists, who see it as the beginning of the end for energy coal, it's probably better seen through the lens of Glencore's self-interest and its voracious appetite for profit.
Glencore, which has been under pressure from a powerful group of institutional investors because of its position as the world's leading energy coal exporter, did frame its announcement as its commitment to action on climate change.
Glasenberg, however, said that while the company had agreed to align its business and investments with the Paris agreement on the response to climate change, the decision to limit production was also in the interests of the company.
Glencore has a market share of about 25 per cent in the seaborne trade for coal and dominates the seaborne market for premium energy coal. Coal, and energy coal in particular, is a core element of its diversified resources and trading operations - it represents about a third of its business.
Coal generated $US5.2 billion ($7.3 billion) of Glencore's $US15.8 billion of earnings before interest, tax, depreciation and amortisation (EBITDA) last year. With a profit margin of about 46 per cent, it is a highly lucrative and cash-generating business with, in a mature mode, modest capital needs.
To understand why Glasenberg might be prepared to cap Glencore's coal production at its current capacity of about 145 million tonnes a year (it produced 129 million tonnes in 2018), it is worth noting that Glencore is quite unique among the major miners because its roots were in the trading of commodities rather than their mining.
As the leading trader/marketer of mined commodities (among other commodities), it sees everything through a marketer's eyes. It moved backwards into mining through its takeover of Xstrata in 2013 to leverage its trading skills and opportunities.
'Value over volume'
That's why Glasenberg's mantra has been "value over volume", and why he was critical of BHP and Rio for boosting their production capacity in iron ore even as the post-financial crisis super-cycle in iron ore prices was imploding. He wants to influence prices, not just accept them.
Last year's $US1 billion acquisition of Rio Tinto's Hail Creek and Valeria mines in Queensland and, with China's Yancoal, the purchase of Rio's Hunter Valley coal mines in a $US2.7 billion deal that saw Glencore emerge with a 49 per cent interest - and marketing rights - for $1.7 billion, ensured Glencore's dominance of the premium end of the energy coal market.
Dominance equates to the ability to influence prices, an ability enhanced by Glencore's marketing operations. With a $US10 a tonne movement in the energy coal price having a $US480 million impact on its EBITDA, price is more important to Glencore than volume.
Having helped take Rio out of the energy coal market, it suits Glencore - and Glasenberg himself as its largest shareholder, with an 8.4 per cent shareholding worth about $6.6 billion - to help flatten the growth in supply even as demand from developing economies continues to grow solidly. That growth, according to the UN Energy Information Administration, is expected to continue for at least the next 20 years.
When announcing the production ceiling, Glasenberg said the move should bode well for coal prices.
''It is one of the few commodities in the world where there is no big new supply,'' he said.
Being seen to be on the right side of the climate change debate and hailed as the first of the major producers to rule out future growth in its coal output is a bonus for Glencore.
It will accept the plaudits - and now the previously unlikely support of institutional activist shareholders - while making even bigger profits from its coal mining and marketing operations.
Anyone who has followed Glencore or knows Glasenberg, regarded as the hard man in a sector not exactly peopled by bleeding hearts, knows how singular their focus has always been on profits.
"Peak coal" might be good for the environment. But it's a reasonable conclusion that it must also be very good for Glencore and its shareholders, or it wouldn't be voluntarily capping its capacity.
