Where strong fundamentals meet technicals

Glencore (LON: GLEN) share price is still in a bear market as concerns about the company’s business this year. The stock was trading at 438p, which was a few points above the year-to-date low of 411p. It has dropped by more than 25% from its highest point this year.

The case for Glencore

It is easy to explain why the Glencore stock price has plunged hard this year. Investors and analysts believe that the company will have a relatively weaker year in 2023 after its record-breaking performance in 2022. During that year, the company made a record $34 billion profit as key commodity prices soared.

There are also concerns that Glencore will be forced to cut its dividend as other global mining companies did recently. BHP, Anglo American, and Rio Tinto all slashed their payouts to investors as they remained concerned about the commodity sector.

However, a case can be made for investing in Glencore. First, the company, under Gary Nagle has changed how its does its business by implementing key ways to fight corruption. In an interview with Bloomberg, Nagle talked about how the firm has moved to cashless systems even for simple tasks like paying for taxi.

The company has also moved from using agents to broker deals. In most parts, these agents were the main reasons why the company came under serious legal turmoil.

The most important reason to buy Glencore stock is that the company is involved in key commodities that are needed now and in the future. It is one of the leading miners and sellers of coal, a commodity that will become more essential than most analysts expect. 

While most countries are moving from coal, the reality is that the transition is proving difficult. The UK recently fired up its coal plants in a bid to diversify its energy sources. Other countries like China and India are still consuming record amount of coal.

Copper as a catalyst

While Glencore is involved in ‘dirty’ coal, it is also a major player in commodities that are essential for the energy transition. For example, it is a key miner of copper, a metal whose usage is expected to jump sharply in the coming years. Copper production will need to more than triple by 2040, which will push its price to over $10,000 a tone. Glencore expects to produce over 2 million tons in the next few years.

Further, Glencore also has a strong market share in metals that are used in electric cars like lithium and nickel. The company sold 263 kt of nickel through its marketing business. It produced 107 kt of nickel in its plants. 

Therefore, Glencore is benefiting from the rising demand of both dirty commodities like coal and ‘clean’ ones like lithium, cobalt, and nickel.

However, the Glencore share price could still see some weakness in the coming months. As shown in the daily chart below, the stock is about to form a death cross, which happens when the 200-day and 50-day exponential moving averages (EMA) make a crossover. Therefore, it could slip to about 350p in the near term. In the long term, the shares will bounce back as the company’s revenue booms.

GLEN chart by TradingView