Glencore / Commodities Update: It's Serious

Source:  FT

The Glencore story is developing fast and there's spin aplenty in the air.  The company, and others of the commodities fraternity like Trafigura, wish it to be known that (a) they are nicely diversified and (b) there's no great Systemic Risk here:  "here are some arguments as to why commodities trading firms do not pose systemic risks".  Move along, everyone.

Well (c) Glencore may be diversified but the market sees it as a natural physical long position, and is treating it thus; and (d) whatever else, some of the firms we know about (i.e. the publicly held ones) look pretty under-capitalised - don't they ?!  Actually, very under-capitalised.

The oldest problem.  And that takes us back to Enron. 

Now look at the percentage of the FTSE that is represented by commodities firms of one sort or another (and see Stephen L's comment on pensions in the earlier post linked above).  Systemic risk?  O-oh yes.

ND