Glencore aftershocks will reach the sovereign debt markets

(Original source Financial Times)  

“Glencore’s decision last week to cut its dividend, sell off assets and scale back its mineral production in an effort to repair its balance sheet has once again brought into sharp focus the challenges facing the natural resource industry. Over the past year, virtually every commodity across the composite index — metals, minerals, energy and foodstuffs — has suffered a notable decline in price. The one-year return on gold is down roughly 8 per cent, copper prices have declined more than 13 per cent and oil has fallen nearly 50 per cent. 

Notwithstanding the carnage in the commodity markets, many emerging market producer countries still have relatively unfettered access to the international debt capital markets. This is helping to mask the fact that many of them (commodity exporters in particular) will increasingly struggle to fund their large budget gaps, and a full-blown global sovereign credit crisis could develop.”

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