Glencore Flashcards
Different types of risks
External risk - supply demand price of commodities, currency exchange rates, geopolitical permits and licences, laws, liquidity
Business risk - counterparty credit performance, operating, cyber
Sustainability - health + safety + environ, climate change, community relations and human rights
Transition to greener fuels
Solar too expensive so LNG is a bridging fuel - but huge spike in prices due to Russian war and now importing LNG from USA which obvs expensive
Kieran’s risks
Basic risk - outright price fluctuations
Logistical risk - things through the supply chain eg political discourse
Quality risk - e.g trafigura nickel
Time risk
Shipping risk
Currency risk
Counterparty risk
Reputational risk
5 C’s of credit
Used to convey creditworthiness of potential borrowers, starting with applicants character:
Character - credit history
Collateral - asset that can back or act as security for the loan
Capacity - applicants dept to income ratio
Capital - amount of money the applicant has
Condition - amount involved, prevailing interest rates
Questions to ask
How did an event like the Trafigura nickel scandal make you adapt your approach to risk?
Logistics to become greener, e.g. lets say a new legal requirement was dropped asking for a new green regulation in the production process
What will change in maritime laws mean for commodities
Emissions capping will make it more expensive for commodities to trade, will filter down
For case study, how would you analyse risk
Go through each type of risk, whether its exposed to those ones or not, what this means for glencore, how can they mitigate these risks.
How has russian war influenced global macro markets
Inflation, interest rates
For IR, higher borrowing costs, gets passed down in prices througg supply chain regardless of equity-debt ratio
Price of gas went up so then companies burnt coal instead, and then price of coal is went up
Commodity prices and volatility, particularly in energy sector, surged
Values of glencore
Integrity, responsibility and openess
Strategy is focused on enabling decarbonisation
Why risk management
Interested in analysing data to identify and mitigate risk - enjoy the detecting work and the dynamic environment.
Want to be in a forward looking function.
Also think it aligns with my strengths
How does hedging help lower the risk for Glencore
Lowers exposure to price volatility by by selling futures of the commodity
Limits glencores overall exposure and downside risk if prices move
Provides more certainty and stabilises income
What does glencores 0.6 debt-to-equity ratio suggest about their risk appetite
Glencore has a moderately high risk tolerance and willing to use debt financing aggressively to pursue trading profits. But introduces more volatility into financial results. But it’s not extreme leverage in comparison to other financial sectors.
