Glencore shares dive 27.5% in HK on global commodities slump

The logo of Glencore pictured in front of the company's headquarters in the Swiss town of Baar.
The logo of Glencore pictured in front of the company's headquarters in the Swiss town of Baar.PHOTO: REUTERS

HONG KONG (AFP, BLOOMBERG) - Shares in mining giant Glencore plunged 27.52 per cent in Hong Kong on Tuesday morning (Sept 29), hammered by weak commodity prices as Chinese demand slows while a brokerage warned about its impact on the group's future.

In mid-morning trade Glencore was 27.52 per cent down at HK$8.90, following a 29 per cent drop in London on Monday arm, dragging shares of other resource firms like Noble Group, Mitsui & Co. and BHP Billiton lower.

Singapore's Noble Group slid 9 per cent to an almost seven-year low, paring a 15-per cent plunge earlier on Tuesday morning.

Investec said in a research note on Monday that the "challenging environment for mining companies" made it questionable how much value would be left for Glencore equity holders if commodity prices remained subdued.

The MSCI Asia Pacific Index is heading for its biggest quarterly loss since the global financial crisis, with every major benchmark in the region retreating on Tuesday.

A 15-month rout in raw materials and energy prices is colliding with surging corporate borrowing costs to challenge the business models of previously high-flying commodity firms such as Glencore, whose London shares have dropped 73 per cent since June. The Bloomberg World Mining Index slid to its lowest level in almost seven years on Monday.

The yield on US non-investment grade corporate notes has risen for 11 straight days amid slowing Chinese growth and doubts about whether the US economy is strong enough to handle higher Federal Reserve interest rates.

Credit traders are treating Glencore as if it's already junk, sending the cost of insuring the commodity and mining giant's debt to the highest level since the global financial crisis.

Derivatives traders started demanding upfront payments to protect against a Glencore default, the first time that's happened since 2009, according to CMA. The cost of five-year credit-default swaps effectively priced in 54 per cent odds that the company will fail to pay its debts, CMA data show.