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Melbourne - Glencore [JSE:GLN] plans to cut zinc production by about a third, having already curbed copper and coal output, as the Swiss mining and trading giant continues to navigate the rout in commodity prices that last week briefly wiped $6bn from its market value.
The company is restructuring its finances and operations as it attempts to get ahead of investors’ concerns that it carries too much debt given its exposure to cratering raw materials prices.
As a major supplier of base metals such as copper, nickel and zinc, its metals and minerals businesses delivered about 30% of its revenue last year.
“Maybe they are the trailblazer, as there’s the specter of oversupply in many commodities,” Morgans Financial analyst James Wilson said by phone from Perth.
“If you want higher prices for a commodity, you need to create price tension and to have less product in the market. Glencore’s doing that, though maybe under duress, and it’s something that other big companies should be thinking of.”
Annual zinc output will fall by about 500 000 metric tons as Glencore suspends or cuts output from mines in Australia, Peru, and Kazakhstan, it said on Friday in a statement. Global production was 13.3 million tons in 2014, according to the US Geological Survey, making the reduction equivalent to almost 4% of world output.
The curbs will shave about 100 000 tons from its fourth quarter output, Glencore said, while production of other metals including lead and silver will also be affected.
Zinc, which helps protect steel from corrosion, rose as much as 6.1% on the London Metal Exchange, the most in almost four years. Prior to Glencore’s announcement, it had fallen 23% this year.
Tumbling prices
“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 is “positive about the medium and long-term outlook for zinc, lead and silver prices.”
Glencore rose 0.6% in Hong Kong trading to HK$14.32 as of 07:18, trimming its decline over the year to 58%.
The company’s main listing in London saw shares tumble 29% on September 28 after analysts expressed worries over the pace of its $10bn debt-reduction program.
Glencore erased those losses after rebutting the concerns and as investors including the sovereign wealth fund of Singapore were said to have expressed interest in a minority stake in its agriculture business.
Commodities prices have tumbled in recent months as producers of metals to energy struggle to curb surpluses due to slower economic expansion in China. The nation accounted for half of the world’s refined zinc consumption in 2014, according to Bloomberg Intelligence.
Copper closures
Glencore’s decision “may be an indication of just how weak demand is at the moment,” Perth-based Macquarie Group analyst Ben Crowley said by phone. The producer’s full-year zinc output in 2014 was 1.4 million tons, according to its annual report.
The Baar, Switzerland-based company plans to shutter copper mines in Africa accounting for about 2% of global supply after prices in August touched a six-year low. Copper prices will respond to the cutbacks, Glencore’s billionaire CEO Ivan Glasenberg said on Monday in London.
“Glencore will not push incremental volumes into markets that don’t need them,” Peter Freyberg, Glencore’s head of coal, said in a speech Wednesday, referring to the cuts made by his division in February, when it announced it would reduce its Australian coal output by 15 million tons this year.
While the zinc output curbs are considered temporary, Glencore will reduce staff numbers at its mines, it said in the statement. The company employs about 180 000 people across more than 150 mining and metallurgical, oil production and agricultural assets.
