Shares for Glencore have rallied, achieving their biggest gain in the history of the commodity trading and mining company. The value of the shares increased by 17% after the company insisted that it will be able to withstand current market conditions.
Glencore has lost nearly $45 billion in market value this year, as shares have fallen by 73%.
Just yesterday, the company declined by 29%, which represented its largest single day loss. The declines have been driven by slow economic growth in China, which is the world’s largest importer of raw materials.
According to creditors, Glencore has an estimated 53% possibility of going into default sometime in the next five years.
Glencore released a statement yesterday that said it is adamant that it will stay afloat, despite the troubling outlook.
The statement read, “Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues. Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding.”
Investors of the commodity trader have urged Glencore to break its silence. Rumors of the company’s viability have hurt the performance of the stock considerably.
Professor of economics and finance at City University London said, “Investors can overreact on limited information. You can’t just sit back and take a 30 percent hit to your share price, this you have to react to.”
Despite the rebound, the future of Glencore still faces serious questions. Extreme market viability is almost never a positive sign for a company. Glencore fell 29% on Monday, only to increase 17% on Tuesday. It hardly ever gets more extreme than that.
As China’s economic slowdown has affected prices of commodities such as oil, copper, and coal, Glencore has suffered severely.
CEO of Glencore Ivan Glasenberg has been working on a plan to reduce the company’s debt. The plan includes dumping assets, ceasing dividend payments and offering more shares of company stock.
The 17% rise on Tuesday came after analysts determined that the collapse from Monday most likely did not indicate the true value of the company
Analyst Robin Bhar said, “The pummeling of Glencore yesterday was irrational. Unless you think commodity prices are going close to zero, then this was overdone.”
Even though Glencore had a good day on Tuesday, it still has a long, difficult road ahead. Unless the commodity market improves as a whole, Glencore will continue to face a murky future.