Global mining and commodity trading giant, Glencore, is preparing to announce its decision on a potential demerger of its coal and carbon steel materials business next week. This comes in the wake of its recent $7 billion acquisition of Elk Valley Resources (EVR), the coal business of Teck Resources.

The company has been consulting with its shareholders to gauge their views on the potential demerger, a process initiated earlier this month after receiving the final regulatory approval for the EVR acquisition. Glencore's CEO, Gary Nagle, stated, 'We expect to be able to announce the outcome of such engagement and the decision of the Board regarding the potential demerger alongside our interim results next week.'

Glencore's potential coal demerger marks a strategic shift for the company. Having long resisted the pressure to follow rivals in offloading their coal assets, Glencore has argued that the world's dirtiest fossil fuel remains necessary and that it is more responsible to manage these assets in-house rather than selling them. This stance, however, faces significant pushback from several top investors who have expressed skepticism about the demerger plan.

Coal has been one of Glencore's most profitable divisions, driving record returns in recent years. The acquisition of Teck's mines is set to further boost Glencore's steelmaking coal production. The company revised its 2024 steelmaking coal production guidance to range between 19 million and 21 million tons, up from earlier projections of 7 million to 9 million tons, thanks to the inclusion of 12 million tons of expected coal production from EVR.

The potential demerger, if it occurs, could lead to a share price increase, yet it also carries risks. According to analysts from Jefferies, a coal demerger is highly unlikely, with the acquisition of EVR anticipated to have a significant positive impact on the company. Analysts Patricia Hove and Christopher LaFemina stated, 'We believe a coal demerger is highly unlikely, and... the acquisition of EVR from Teck will prove to be a significant positive for Glencore as this is the world's highest quality met coal business.'

On the environmental front, Glencore has pledged to responsibly run down its thermal coal assets. Nonetheless, there are concerns that spun-off assets typically shift into private ownership where they are managed for longer durations with less investor oversight, potentially exacerbating climate impacts.

The coal which Glencore produces ranges from thermal coal, used in power stations, to higher-value steelmaking coal. Analysts have noted that diversified mining companies such as Rio Tinto, Vale, and South32 have already exited from coal, with Glencore's own strategic direction remaining a focal point of investor debate.

Adding complexity, the company is under pressure from activist investors and fund managers. Tribeca Global Natural Resources Fund, led by Ben Cleary, has pushed for Glencore to halt the demerger and reconsider its primary listing in the Australian Securities Exchange (ASX). Despite the broader industry trend of reducing coal exposure due to environmental, social, and governance (ESG) concerns, there remains a strong investment case driven by high cash flows from coal assets.

Moreover, battery metals like cobalt, zinc, and nickel, previously central to Glencore's portfolio, have faced challenges including oversupply and price declines. In contrast, steelmaking coal retains a premium due to its critical role in the steel industry, further highlighted by the successful Elk Valley acquisition.

Market dynamics in other commodities, including iron ore, add another layer to Glencore's strategic decisions. Iron ore prices in Singapore recently showed fluctuations, reflecting broader uncertainties in the global markets. While Glencore maintains its 2024 guidance for key transition metals like copper, the success of the coal business remains vital amidst global market and environmental pressures.

The impending decision on the coal demerger will be a defining moment for Glencore. With shareholder consultations drawing to a close, the company's strategy in navigating environmental responsibilities while maximizing shareholder value is under intense scrutiny. The international business community, environmental groups, and investors await Glencore's next move with bated breath, as the decision could set significant precedents for the mining industry and global commodity markets.