Zinc jumps most in 4 years, other metals rally, after mining giant Glencore slashes production

Glencore's headquarters in Baar, Switzerland.
Glencore's headquarters in Baar, Switzerland.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - Zinc prices surged on Friday (Oct 9)after Glencore, the biggest producer of the metal, said it plans to cut output by about a third, adding to signs that commodity producers are willing to scale back supplies to combat slumping prices, boosting the prospects for a global deficit.

The metal, which is used to galvanize steel, jumped as much as 6.1 per cent, the biggest intraday gain since November 2011, to US$1,769 a metric ton on the London Metal Exchange and traded at US$1,749.5 as of 12:26 pm in Shanghai.

Zinc had slumped 23 per cent this year as of Thursday's close as slowing economic growth in China hurt the outlook for consumption.

Glencore Chief executive officer Ivan Glasenberg has challenged rival miners this year to rein in output amid a commodities rout, saying in May that oversupplying markets regardless of demand damages the industry's credibility. Glencore has also cut copper and coal production this year.

"The production cut by Glencore might make the zinc market basically balanced this year, and slide into deficit next year," Li Qi, chief metals analyst at Cofco Futures Co., said from Shanghai.

Glencore rose 1 per cent in Hong Kong trading, while other producers of the metal surged. In Tokyo, Toho Zinc Co. was up as much as 9.2 per cent, giving it the biggest gain among shares listed on the Nikkei 225, while Mitsui Mining & Smelting Co., Japan's top zinc smelter, gained as much as 4.5 per cent. Chinese producer Zhuzhou Smelter Group Co. increased as much as 8.9 per cent.

Annual zinc supply will be reduced by about 500,000 tons with the suspension of the Lady Loretta mine in Australia and the Iscaycruz project in Peru, while output from other projects in Australia, South America and Kazakhstan will be reduced, Glencore said in a statement. That's about 3.5 per cent of global refined supply this year, according to Bloomberg calculations based on Morgan Stanley production data. The curbs will also affect production of other metals, including lead.

Commodity production cuts are accelerating, Morgans Financial Ltd. said in a report on Oct 7, citing cutbacks in copper, nickel, crude oil and coal, including reductions made by Glencore at its copper mines in Africa.

Lead supplies will contract by about 100,000 tons, Glencore said in the statement. Lead gained as much as 3.1 per cent in London while copper rose as much as 2.4 per cent as aluminum and nickel also climbed.

"The main reason for the reduction is to preserve the value of Glencore's reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources," the company said. "Glencore remains positive about the medium- and long-term outlook for zinc, lead and silver prices."

Prior to Glencore's announcement, Morgan Stanley estimated in a Sept 29 report that the global zinc market would have a deficit of about 120,000 tons this year, 50,000 tons in 2016 and 450,000 tons in 2017. It forecast mine production to rise 2.7 per cent next year and demand by 4 per cent, leaving the market in a modest deficit, according to a separate note on Oct 6.