Commodities Look Healthy Again, So Why Did Glencore Fall From Grace? (DBC, JJC)

Tim Seymour:  The smartest guys in the commodity markets are at Glencore International Plc, but while their company’s stock has bounced off its lows, it is still lagging the prices of the raw materials they trade. 

Glencore doesn’t trade in the United States, but in London this legendary commodity house has seen its shares plunge 25% since its May 19 IPO — even after accounting for a 13% bounce off the lows over the last week.

During the same period, commodity prices — as reflected by the CRB index — have dipped as much as 7%, but have recouped 1/2 of their losses.

Glencore is down 25% and commodity prices are down less than 4%. What went wrong?

For one thing, the money that poured into Glencore in its stockmarket debut was entirely from speculators and other investors, whereas commodity markets are still largely driven by consumer buying.

Consumers know how much copper, oil and other materials they need, and they know that to stay in business they need to keep buying.

Speculators can simply jump in and out of stocks or be forced out when markets turn against them.

By the time Glencore finally hit the London stock exchange, commodities were already well into their May swoon.

When the IPO launched, the CRB was down 7% from its peak followed that with another 7% plunge. On that time scale, commodities still have to climb 12% to recapture the levels they touched back in April.

Finally, we might have to wonder whether Glencore was simply priced too high for its fundamentals. With Credit Suisse, Citigroup and Morgan Stanley running the deal, it is unlikely that all the underwriters were so far off.

In any event, Glencore has been the canary singing the changes in the commodity markets lately, so its recent swing back to the upside could bode well for broad-based commodity ETF plays like PowerShares DB Commodity Index Tracking ETF (NYSE:DBC) as well as more specialized funds like copper portfolio iPath DJ-UBS Copper TR Sub-Idx ETN (NYSE:JJC):

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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