Glencore to Trim Down Zinc Operations to Win EU Approval for Xstarta Deal

on Nov 1, 2012

**Glenstarta’s Zink Market Dominance Causes EC Antitrust Concerns**

The planned $70-billion merger between Anglo-Swiss company Glencore (LON:GLEN), the world’s largest commodities trader, and Switzerland-based miner Xstrata (LON:XTA) has raised concerns over global dominance of the zinc market. With almost 20 zinc mines and projects from Canada to Burkina Faso, “Glenstrata” — as the potential combined company is popularly known — would be the world’s top zinc trader, one of the biggest zinc smelting companies and the largest producer of the metal, with about 11.5 per cent of global supply.

Considering Glenstrata’s potentially large market share in Europe and the potential effect of the merger on local rival companies, European competition regulators told Glencore that it needs to submit a plan to address the dominance that the combined group would have of the regional and global zinc market. The European Commission stated that unless the antitrust problems are decisively addressed, it will open a full probe, known as a phase two investigation, which could delay regulatory approval for the merger until spring next year.

**Glencore Cancels Nyrstar Zinc Deal**
In a bid to clinch approval from European regulators for its merger with Xstrata, on Tuesday (30 October 2012), Glencore submitted a plan to the EC on addressing the combined company’s dominance of the zinc market. The commodities giant offered to break an off-take contract with Belgium-based miner Nyrstar (EBR:NYR), currently the world’s top zinc producer. The cancelled deal included about 600,000-650,000 tonnes of zinc each year – equivalent to almost a quarter of the third party market.

On Wednesday, the commission said it would extend its review of the merger to take account of Glencore’s offer. A decision is expected by November 22, before which the EC will need to consult with Nyrstar as well as other market players.
**Opportunity for Rivals**
!m[Compliance with EC Antitrust Concerns Opens Up Opportunities for Rivals, while Q3 Marks “Healthy Improvement” for Glencore](/uploads/story/702/thumbs/pic1_inline.png)Glencore’ compliance with EC antitrust concerns have opened up one of the best opportunities in years for other traders to gain market share in zinc, The Financial Times reported today, 1 November 2012. After the Anglo-Swiss company gave up the off-take contract with Nyrstar, rivals are salivating at the prospect of the deal coming up for grabs. Yet it is still unclear what will be up for grabs, since Glencore has proposed to the European Commission that it would break the off-take deal only in Europe, which accounts for about 350,000 tonnes of annual sales.

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Despite the uncertainty around the deal’s details, Trafigura was already pointed to by analysts as the most obvious candidate to take on the contract. The Dutch commodity trading company has the second-largest zinc book after Glencore, and was in the mix for the contract with Nyrstar before Glencore first agreed the deal in 2008.
According to traders, however, few other companies would have the logistical capabilities, balance sheet and global reach to take over the contract. Possible candidates include private equity-backed US trading house Traxys, as well as traders that are trying to gain a foothold in the zinc market, such as the French Louis Dreyfus Commodities and the Swiss MRI Trading, controlled by Singapore-listed logistics group CWT (SGX:C14).
**Glencore Reports Strong Q3 Trading Operations, Outlook Remains Positive**
In the middle of the latest developments around the Xstrata merger, Glencore said in a trading update that its overall performance was “good” in the three months to September 30, despite weaker commodity prices and tough global economic conditions.
“(The third quarter) saw a healthy improvement,” Glencore said of its trading operations, which accounted for just over a third of profit last year, but are seen as a bellwether and less easily forecast by the market than the industrial arm, made up of mines, farms and oil fields. The company’s representative added: “Glencore’s outlook for the remainder of the year in marketing [trading] remains positive.”
The positive third-quarter trading performance of the company, however, was against a more uneven picture for its mines, where strikes and Congo power cuts dampened growth.

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