The negative risk asymmetry of Glencore’s 2016 coal hedge is phenomenal.
55mmt is 55,000 LOTS of API2 coal swaps, while the one-year curve aggregate open interest is between 57,000 and 75,000 lots according to clearinghouse LCH Clearnet.
Assuming the 55,000 LOTS are equally divided by 12, GLENCORE monthly position would be between 50% to 90% of the typical open interest at any given month during the first half of 2016.
What was the rationale of the Zug-based company when they made the decision to sell an exposure (55 million tons) 100% of they hadn’t produced in 2016 at the lowest price range ?
In this article, we observe the role of an exogenous variable at Glencore, which is fundamentally changing the contours of the book.
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Keywords: finance strategy, glencore, bloomberg surveillance, CDS, Trade, Analysis and Compliance, Credit default swap and bond market assessment of Glencore bankruptcy risk.