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BUSINESS

Cool reception for Glencore share launch

Shares in Swiss commodities giant Glencore slipped in their Hong Kong trading debut Wednesday, following a similarly tepid launch in London for the year's biggest initial public offering.

The firm touched HK$64.65 ($8.31) in early trading, down from their HK$66.53 IPO price, before recovering slightly to HK$65.25 by the break.

Despite the sluggish start, Glencore Chief Executive Ivan Glasenberg said he remained “bullish” on the company’s potential. The world’s biggest commodities trader by revenue raised about $10 billion ahead of the dual listing.

“We are still bullish with commodities and the strength in the commodities market,” he told reporters at the firm’s listing ceremony in Hong Kong.

“At the end of the day, the demand for commodities still continues robustly.

“The big question is whether the big mining companies in the world will continue to increase production to match the demand in Asia,” said Glasenberg, who flew in from London.

Glasenberg rejected suggestions the listing’s weak start was tied to a recent dip in commodities prices.

“We thought it was the time to become a public company, and this was just the time,” he said, adding that “it’s irrelevant the actual time of listing… The underlying market is still very strong.”

Oil prices have slipped in recent weeks — after touching two two-year highs — amid concerns over the global economy and easing demand, while gold has fallen about five percent from its record at the beginning of May.

Hong Kong brokerage Wing Fung Financial advised investors to hold on to the stock given the likelihood of rising commodity prices.

“Although there is some correction in the commodity market recently, most of the prices are (still) higher than (that of) last year. We expect the prices will rise after correction,” it said, according to Dow Jones Newswires.

The Swiss company, which posted revenue of $145 billion in 2010, deals in a range of products including oil, coal, gold and foodstuffs, but also owns a number of mines worldwide. The dual listing values Glencore at nearly $60 billion.

Glencore shares in London sank to 525 pence ($8.49) by the close Tuesday, or 0.84 percent below their IPO price of 530 pence, despite the float being among the most anticipated of the year amid soaring commodities demand in Asia.

Glencore sold 31.25 million shares in the Hong Kong offer, with the retail portion representing just 2.5 percent of the total sale, while the remainder was sold in London.

It plans to use funds raised by the listing to pay down debt, boost its stake in Kazzinc, a zinc producer with core operations in eastern Kazakhstan, and finance other projects to expand its business.

The commodities behemoth has said it secured $3.1 billion from so-called cornerstone investors, including sovereign wealth funds in Singapore and Abu Dhabi, who have subscribed to 31 percent of the shares on offer.

The firm earlier described its secondary listing in Hong Kong as a means to build a “long-term mutually beneficial relationships” with the city’s investors, and enable it to draw on demand from resource-hungry Asian markets, with China and India increasingly keen on resources to power their economies.

Founded in April 1974 by trader Marc Rich, Glencore operated initially out of an apartment in central Switzerland’s Zug canton before quickly emerging as a major player in commodities trading.

From metals, minerals and crude oil, the group moved into agricultural goods and started in the late 1980s to expand to owning mines.

BUSINESS

Clock ticking on Swiss watches’ raw materials from Russia

Diamonds shine brightly at this year's Geneva watch fair but the sanctions slapped on Russia could soon force the Swiss watch industry to produce more subdued designs.

Clock ticking on Swiss watches' raw materials from Russia

Russia is a major supplier of diamonds, gold and other precious metals to the luxury watchmakers exhibiting at Watches and Wonders, one of the world’s top salons for the prestige industry.

The Russian group Alrosa — the world’s largest diamond mining company — was hit by US sanctions within hours of the Kremlin-ordered invasion of Ukraine on February 24.

According to US Treasury figures, it accounts for 90 percent of Russia’s diamond mining capacity, and 28 percent globally.

And while trade between Switzerland and Russia is modest, gold is the chief import, ahead of precious metals such as platinum followed by diamonds not mounted or set, according to the Swiss customs office.

Compared to other sectors of the Swiss economy, “watchmaking was a branch that was less affected than others by supply problems in 2021”, Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, told AFP.

But that may no longer be the case, he acknowledged, adding that it was hard to assess the repercussions for the watch industry at this stage.

“There are obviously reserves. Afterwards, we will have to see, depending on how long the conflict lasts,” Pasche said.

The booth of Swiss luxury watchmaker and jeweller Piaget at Watches and Wonder

The booth of Swiss luxury watchmaker and jeweller Piaget, owned by Richemont group, photographed on the opening day of the Geneva salon. (Photo by Fabrice COFFRINI / AFP)

Recycled gold and palladium
The Swiss luxury giant Richemont owns the Cartier and Van Cleef & Arpels jewellery firms, plus eight prestigious watch brands, including Piaget and IWC.

The group took the lead on Wednesday, saying all its brands have stopped sourcing diamonds from Russia.

The move will create a lot of work on the supply chain to find responsibly sourced, quality diamonds from elsewhere, Richemont chief executive Jerome Lambert told a press conference.

Gold supply is of less concern. For a decade or so, Richemont has been sourcing recycled gold for watchmaking, bought from industry and the electronics sector.

For palladium, used for instance for wedding and engagement rings, the group decided “ahead of the sanctions” to switch to suppliers specialising in recycled palladium, Lambert said.

Draining the stocks
At Patek Philippe, one of the most prestigious Swiss brands, the firm’s president is counting on his stockpile to ride out the storm.

“Luckily I produce in small quantities,” said Thierry Stern, who represents the fourth generation of his family at the company helm.

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC,

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC, on the opening day of the Watches and Wonders Geneva show. (Photo by Fabrice COFFRINI / AFP)

“So I don’t feel any difference yet,” he told AFP. For 2022, Patek Philippe plans to manufacture 66,000 timepieces.

“And if I can’t find certain stones, I can always do engraving,” said the head of theĀ  brand, which relies on a wide range of disciplines including ceramics, marquetry and enamel.

H. Moser, a niche brand producing 2,000 watches a year for wealthy collectors, struck much the same tone.

“Purchases are made in advance. For example, for the casings that I want to make in 2023, I have already bought all the gold I need,” said boss Edouard Meylan.

“But maybe in six months’ time some of our suppliers will call to push back the deadlines because they haven’t received the materials,” he admitted.

Concerns over raw materials “will drive up prices, of course”, said Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company.

However, compared to other sectors, luxury firms have more leeway to pass on costs to customers, he added.

At the Watches and Wonders salon in Geneva, where 38 brands are exhibiting until Tuesday, the displays are brimming with diamonds, reflecting the “generally upbeat mood” of the industry this year after a prosperous 2021.

However, given the war and its repercussions, “I imagine product development will move to more subdued luxury goods”, Cox said.

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