Glencore has made a loss of $395 million from hedging 55 million mt of its unsold coal production in the derivatives market during the first six months of 2016, the Switzerland-based diversified miner said in its half-year report Wednesday.
"The net expense comprises primarily $395 million relating to an accounting measurement mismatch between the fair value of coal derivative positions in respect of portfolio risk management/hedging activities initiated in Q2 2016 and the anticipated future revenue to be generated from the sale of future unsold coal production," Glencore said in a statement.
The miner added that the total derivatives position managing forward sales was expected to be settled before the end of June 2017.
Glencore said that under International Financial Reporting Standards accountancy rules, the transactions could not be designated as hedging instruments as they included pre-existing trading contracts for which mark-to-market movements had already been included in trading results.
As a result, the loss had to be reported ahead of the underlying futures transactions expiring.
International seaborne thermal coal prices have been on an upward slant since bottoming out in the second quarter due to Chinese domestic production cuts, and a rebalancing of a previously oversupplied market.
Since the beginning of April, Europe-delivered CIF ARA year-ahead thermal coal futures have risen over 37% to $57/mt on Tuesday, according to S&P Global Platts data.
