The company also believes that the growing trend to return funds to shareholders instead of investing in capital expansion will be good for medium-term commodity prices because it will curtail over-investment in production.
As the company released its annual financial results, CEO Ivan Glasenberg said Glencore’s energy products division’s 2013 total adjusted EBITDA was $US4 billion, 12% below 2012, as lower realised coal prices impacted the coal industrial business.
This was offset by a 4% increase in coal production volumes, weaker producer currencies and the realisation of cost savings associated with restructuring the Australian business and some merger related synergies.
“Incremental capital allocation will focus on lower-risk expansion brownfield projects and bolt-on acquisitions that minimise risk and allow for strong returns and rapid cash payback,” Glasenberg said.
“The combination of the substantial completion of the current growth pipeline and our operational cost-reduction program is expected to see Glencore move materially down the cost curve in all our key commodities.
“Under pressure from shareholders, resources companies appear to be fundamentally reassessing their allocation of capital dedicated to new supply. This does suggest a more constructive price environment for commodities in the future.”
Last year the company decided not to go ahead with the greenfields Wandoan thermal coal project in Queensland’s Surat Basin as part of its more stringent capital allocation policy.
Glasenberg said Glencore continues to see healthy demand growth in all its key commodities, underpinned by the long term trend of urbanisation in emerging markets and parts of the developed world returning to trend growth.
“In our coal production unit, we are clearly positively aligned to some gradual expected improvements in coal market fundamentals, while in marketing, we are well-positioned to meet the increasing quality and blending arbitrage opportunities which could be expected in both the Atlantic and Pacific markets,” he said.
