RBC Capital downgrades Glencore after 14% YTD share price rise

The Canadian bank said that while Glencore provides solid and diversified long-term exposure to the sector, weakness in thermal coal prices removes a positive from the investment case, with uncertainty still heightened elsewhere on the Department of Justice subpoena, DRC exposure and rising environment, social and governance concerns.

RBC's analysis suggests that previously strong thermal coal prices are likely to now face a challenging year ahead, with pressures from collapsing liquefied natural gas prices and China import volatility.

With seaborne coal markets now in surplus from a deficit previously, RBC moved its price forecasts to $76/t for 2019 and $80/t for 2020 from $100/t previously and consensus of $90/t.

"We remain constructive on coal in the medium-term with what remains a robust supply/demand outlook in our view. Unfortunately, we no longer see stronger coal prices as being a driving force behind a near-term relative re-rating," it said.

"We continue to see potential in the medium term, but after a 14% increase in share price year to date, we move our rating to sector perform."

It added that Glencore still screens inexpensive versus peers, particularly Rio Tinto, BHP and Antofagasta.

RBC said that its downgrade of Glencore means Anglo American is the now only outperform-rated stock in its London diversified coverage, which it said was nearly "a complete opposite" from its positioning in 2017, when it saw much greater return prospects for the sector on a fundamental basis.

At 1345 BST, the shares were up 0.2% at 331.05p.