08/21/2012 03:50 EDT | Updated 10/20/2012 05:12 EDT

Commodities giant Glencore posts 8 per cent net profit drop in H1 amid tough growth outlook

GENEVA - Commodities trader Glencore International PLC, which is seeking to buy Anglo-Swiss mining group Xstrata PLC, reported an 8 per cent drop in January-to-June net profits Tuesday amid falling prices for materials and global economic weakness.

Swiss-based Glencore , which supplies key raw materials such as oil, copper and wheat and owns plants, warehouses and mines, said its first-half net income attributable to shareholders fell to $2.275 billion, down from $2.474 billion in the comparable period of 2011.

It reported revenue of nearly $108 billion, a 17 per cent increase from $92 billion in the first half a year ago.

The value of Glencore's stock dipped 1 per cent to 350 pence ($5.49) at the start of trading on the London stock exchange.

In its financial statement posted before the start of trading, Glencore says its drop in profits was a result of sluggishness of the global economy caused by "the European sovereign debt crisis and corresponding softening growth outlooks in many developed and emerging economies."

Added to this "challenging backdrop" was a decline in average prices for many key commodities of between 14 and 28 per cent, Glencore said, but that was offset in the first half by strong showings from metals, minerals and agriculture.

Its business model was showing "strength and resilience" for its diversification, sourcing of materials, marketing and logistics, the company added. It also highlighted its "abundant liquidity" in the billions of dollars spread across 100 banks globally and no material refinancing planned in the next 12 months.

"Looking forward, we neither anticipate nor assume any material improvement in overall market or economic conditions in the near term," said Chief Executive Ivan Glasenberg, who owns 15 per cent shares in Glencore. "We will continue to diligently look to our own growth pipeline and end markets to maximize performance for our shareholders."

Glencore, the world's largest publicly traded supplier of raw materials, has been trying to persuade investors of the merits of a merger with Xstrata. The all-share deal would involve Xstrata investors swapping each of their shares for 2.8 newly issued Glencore shares. A shareholder vote is scheduled for Sept. 7.

The deal, expected to be completed in the fourth quarter, will create a combined company to be called Glencore Xstrata with a market value of $90 billion. The company would control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.

Glencore already holds a 34 per cent stake in Xstrata but cannot vote its shares on the deal. But Qatar Holding, the government-backed investment fund, wants a higher price for its 11 per cent stake in Xstrata and its position is crucial to the hopes of other Xstrata shareholders who are demanding improved terms.

The company made no mention of the deal in its statement Tuesday but did say it had incurred $1 million in selling and administrative expenses and anticipates $69 million of additional merger expenses.