More for Glencore

As a follow-on to the previous blog, SOYMB came across this article on the Al Jazeera website.

The rapid rise in prices for food, fuel and commodities has been disastrous for the world's poor, including Indonesian market vendor Lia Romi. "The price for our daily food has at least doubled in the past two years. Food costs 100 per cent of my family's daily income of about $3. I have nothing saved and I owe money from my market stall business. I've sacrificed several times not to buy books or clothes for my daughter and son, just for our daily food because I have no savings at all"

But it's a bonanza for multinational trading firms such as Glencore. While Romi has trouble feeding her family, Glencore - the world's largest diversified commodities trader - is planning a US$11billion share sale, likely the largest market debut ever seen on the London Stock Exchange. While Romi, and millions like her, worry about feeding their families, the initial public offering from the commodity speculating giant will create at least four billionaires, dozens worth more than $100million and several hundred old fashioned millionaires. Chief Executive Ivan Glasenberg is set to make more than $9bn from the share sale. And speculating on food prices is an important part of his wealth. Perhaps, Glencore is going public to increase its size, allowing it to acquire large competitors, particularly the mining giant Xstrata. They are so big now, that they cannot get any bigger unless they are listed (even so it is much more convenient for a trader not to be a public company as mandatory disclosure and regulatory oversight limits your activity). Regardless, though, of the firm's reasons, institutional investors from the US, East Asia and the Middle East have all committed to buying. Aabar, the sovereign wealth fund from the United Arab Emirates, controlled by Abu Dhabi's oil-rich monarchs, is expected to become the largest "cornerstone investor", pledging to buy about $1billion worth of stock. It seems that they are buying a stake to strengthen the UAE's control over the global grain trade, for their own food security. Food insecure countries in the Gulf, Northeast Asia, Korea and other regions are attempting to gain more direct control over food, as the market economy "can’t guarantee decent prices."

Glencore controls 50 per cent of the global copper market, 60 per cent of zinc, 38 per cent in alumina, 28 per cent of thermal coal, 45 per cent of lead and almost 10 per cent of the world's wheat - according to information the firm disclosed prior to its share sale. It also controls about one quarter of the world market in barley, sunflower and rape seed. The firm employs about 57,000 people, generated a turnover of $145billion in the past year and has assets worth more than $79billion. Glencore's media department refused interview requests from Al Jazeera. Based in Baar, Switzerland, where regulation is minimal, the company's sprawling interests span Bolivian tin mines, Angolan oil, zinc producers in Kazakhstan, Zambian copper mines and Russian wheat operations.

"They have offices all over the world and unique access to information about production and distribution," said Devlin Kuyek, a researcher with GRAIN, a non-profit international organisation working on food security. "When the people who have that information are also the ones speculating, there is grave cause for concern; they can purchase forward contracts when they know prices are going up." In August 2010, for example, Russia issued a ban on grain exports, after droughts ravaged crops. On August 3, the head of Glencore's Russian grain unit encouraged the government to halt exports. The government followed his advice on August 5, causing prices for cereals to rise 15 per cent in two days. "Days before the export ban went into place, Glencore made huge bets," said Kuyek. "They had some kind of information there; companies with information are in the best place to capture profits from volatility."

"They are possibly one of very few mining companies that are price makers, rather than price takers," said Chris Hinde, editorial director of Mining Journal magazine. "They are the stockbrokers of the commodities business operating in a fairly secretive world. They are effectively setting the price for some very important commodities," he told Al Jazeera.

"Glencore owns almost 300,000 hectares of farm land and it is one of the largest farm operators in the world. They are engaging in speculation on the grain trade and have immense market power," said Kuyek.

"A disturbing amount of price increases, I fear, is being driven by speculative activity," Marcus Miller, a professor of international economics at the University of Warwick, told Al Jazeera. "Bets on future price rises or declines can become self-fulfilling if you are big enough to affect the market."

Duncan Green, the head of research at development organisation Oxfam Great Britain, said international markets for food and other commodities can be compared to the shape of a champagne glass. "There are a lot of people producing, and a lot of people consuming, but there is a pinch point in the middle, controlled by corporations who can walk away with the final value," he told Al Jazeera. "Many of the world's poor are -bizarrely - people growing food."

In addition to manipulating food prices – potentially with insider information - the trading giant appears to have broken laws on several continents. Prosecutors in Belgium charged Glencore employees with criminal conspiracy and corruption, alleging they illicitly sought confidential information on European export subsidies from a public official.

Fluctuations in the global food market could push many of the poor over the edge. "Stability is to be prized," said Oxfam. And that is the last thing Glencore wants, as it's instability which is most profitable - for those who have the inside knowledge to exploit it.