Glencore: King of Commodities Trading

Glencore’s planned IPO prices the company at $55 billion.

This incredibly high valuation is probably shocking to the many people who have never heard of Glencore before. But $55 billion, as large as that figure is, doesn’t even begin to describe just how powerful Glencore is.

For a company founded just three decades ago, its reach and influence are unprecedented. In many ways, it's like the Goldman Sachs of global commodities.

Commodities trader Marc Rich founded Glencore in 1974. In the beginning, it was purely a commodities trading firm. In 1987, it made the decision to acquire an equity stake in an aluminum smelter and never looked back.

Today, Glencore trades, produces, and supplies raw materials all over the world. By doing so, it heavily influences the pricing and movement of these assets.

This type of control is no small matter, especially in the coming decades.

In the previous few decades, the most impactful events in the world and the biggest source of wealth creation was technology breakthroughs (e.g. the IT revolution).

After the global financial crisis, however, raw materials are expected to reclaim the spotlight because several massive emerging market economies are expected to urbanize and industrialize. Meanwhile, there is only a limited supply of raw materials globally.

Therefore, competition for natural resources is expected to increasingly define economic policies and geopolitics in the decades to come.

Even before the global financial crisis, Glencore and its founder Marc Rich were deeply involved in natural resources-driven geopolitical dealings, sometimes with rogue states like the Republic of Congo and Saddam Hussein’s Iraq.

Today, Glencore is en route to going public and Rich is no longer with the company (he left in 1994), so it may not be fair to associate the company with some of its allegedly shading dealings in the past.

But make no mistake; Glencore is a shark – whether it’s dealing with the market, private companies, or nation states – and will aggressively jump on any lucrative opportunities.

Opportunism is what motivated Glencore to file for an IPO and access billions of dollars in public money.

In the old world, fortunes in the commodities market were made by timing cyclical swings/seasonalities and exploiting one-off shocks to supply and demand. Information and secrecy were key, so firms like Glencore operated as private partnerships.

In the new world that will come to be dominated by emerging market growth, money is made by owning the rights and means to the production/extraction of raw materials.

Buying such rights and means is expensive and takes billions of dollars. For Glencore, its best chance to access that kind of capital is through an IPO.

Undoubtedly, Glencore loses the secrecy it used to enjoy, but the need for capital outweighs this concern.

As for investors, many of them are drooling at the prospect of getting their hands on Glencore equity and a piece of the company’s future.

Shares of Switzerland-based Glencore will be traded on the London Stock Exchange and Hong Kong Stock Exchange.

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