Wednesday, 4 May 2011

Glencore: One corporation's power over life and death

Until now the largest and wealthiest commodities trader in the world, notorious for tax avoidance, has managed its murky business in the shadows. But it needs capital to fuel its growth, hence its launch on the London stock market today.

Most people on the planet will not have heard of Glencore, but virtually all are only too well aware of the inflationary effects of its control of a wide range of commodities. Glencore controls 60% of the world’s trade in zinc and 50% in copper.

According to the World Bank’s Food Price Watch, since June 2010, an additional 44 million people fell below the $1.25 poverty line as a result of higher food prices. In March 2011, the food index remained 36% above its level a year earlier.

Even the notoriously right-wing Daily Mail is disturbed by Glencore’s power over life and death. A special investigation says:
Its empire stretches from the jungles of Colombia to the plains of Australia. It makes its money from metals, minerals, oil, sugar, grain — commodities that form the very building blocks of world trade. And, armed with the best possible knowledge of global events, its traders buy these at the lowest possible price and sell at the highest possible mark-up.

With its share issue – the biggest-ever in London – Glencore is now drawing together many more threads in the global web of capital consolidation that is driving food and fuel inflation and forcing tens of millions over the edge into starvation.

Everyone who is anyone in the exploitation of the planet and its people wants to get in on the game of building profit from starvation. Aabar, a unit of Abu Dhabi’s International Petroleum Investment Company is set to be its largest external investor, taking $1 billion. GIC, Singapore’s sovereign wealth fund, will take $400m. Fund managers BlackRock and Fidelity, are set to take $360m and $215m, respectively. Swiss banks Credit Suisse, UBS and Pictet will also take part. Zijin Mining, the Chinese group, will buy as well as several other institutional investors, including hedge funds Och Ziff, Eton Park and York Capital. The launch brings huge fees to the banks which underwrite it. The group is led by global co-ordinators Citigroup, Credit Suisse and Morgan Stanley.

Commodity speculation took off in a big way in the wake of the 2007/8 global financial meltdown. In a co-ordinated panic action, governments and central banks threw billions of every currency onto the world’s credit markets trying to stave off the inevitable recession. But with banks refusing to lend, a great deal of the money found its way into the commodity markets, driving price inflation way beyond the effects of demand and supply pressures.

In 2003, the commodities futures market amounted to just $13 billion. But when the global financial crisis hit, commodities – including food – seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture said. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was rolling the markets. From 2003 to 2008, the volume of index fund speculation increased by 1,900%.

But speculation is not the only cause of inflation in food and fuel. Severe weather vents induced by climate change, increased competition for food and land especially from China, increasing costs of production as oil reaches its peak. And the switch to bio-fuel also contributes to the underlying pressures that Glencore and the other speculators feed upon.

A small, and now declining, number of global corporations driven by profit for the benefit of shareholders, have brought the planet to the limits of its ability to support life, and its people to the limits of their ability and willingness to endure its effects.

Gerry Gold
Economics editor

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