Glencore, the resources group battling falling commodity prices, has made a dramatic intervention in one of its most important markets by announcing plans to slash its annual production of zinc by more than a third.
The unexpected move by the UK-listed company, the world’s biggest miner and trader of zinc, will cut output by 500,000 tonnes a year and could help put a floor under the price of the metal, which has fallen to a five-year low on concerns about slowing economic growth in China.
On Friday morning, zinc for three month delivery on the London Metal Exchange was up 8 per cent at $1,815 a tonne – the biggest one day price move in almost four years.
Other base metals were also higher with copper up 3.2 per cent to $5,324 a tonne and aluminium gaining 3.3 per cent to $1,613.
The production cut comes as Glencore scrambles to reassure nervous investors and creditors that it can cope with its $30 billion debt load amid the latest commodities rout. Glencore shares rose.
The group said it would suspend production at its Lady Loretta mine in Australia and at Iscaycruz in Peru. It will also reduce output at McArthur River and the George Fisher mines, both also in Australia and some operations in Kazakhstan. The cuts are expected to result in about 1,600 job losses.
“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 in a statement.
People close to the company said that Glencore wanted to protect its reserves and “leave them in the ground” until the price for zinc recovered.
The Switzerland-based miner will restart production and feed the 500,000 tonnes of zinc back into the market once prices have risen to a level they believe better reflects the balance of supply and demand.
– (Copyright The Financial Times Limited 2015)
