Glencore shares jump 7% as miner slashes zinc production by a third
Miners were propelled to their biggest gains for six years yesterday as Glencore slashed zinc production by a third and the bond giant Pimco called the end of the rout in global commodity prices.
Glencore – the mining and trading giant led by Ivan Glasenberg – has been punished this year for its exposure to a weakening Chinese economy.
But its shares jumped 7 per cent yesterday following its decision to take 500,000 tonnes of the metal out of the market at a stroke – around 4 per cent of global supply – in its latest effort to withstand weak commodities prices.
Zinc, used in metal coatings and everything from cosmetics to batteries, underwent its biggest one-day gain for at least 26 years as it rose as much as 12 per cent. The benchmark zinc price settled up 9 per cent at $1,838 a tonne on the London Metal Exchange.
Copper, nickel and aluminium also gained more than 4 per cent as Pimco – the manager of the world’s second biggest bond fund – meanwhile declared that “declines in commodity prices are largely behind us”. Pimco manages $15bn in commodity assets.
Although Pimco said excess stockpiles meant that prices were likely to stay “lower for longer”, the surge in metal prices left miningstocks among the FTSE 100’s top risers. The wider FTSE 350 mining index showed a stunning 19 per cent rise for the week.
“China is slowing but demand for metals has been holding up quite well, it’s just slowed, it’s not collapsing,” said Caroline Bain, a commodities analyst at Capital Economics. “We’re of the view things will get better from here in China.”
Glencore has already cut copper and coal production in response to lower prices. The company said it acted to “preserve the value of reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources”.
Its operations at Lady Loretta in Australia and Iscaycruz in Peru will be suspended completely, with production from other mines in Australia and Kazakhstan scaled back.
Glencore said the production cut would “ensure that our zinc operations are sustainable well into the future”, although Goldman Sachs analysts noted: “The decision by Glencore (and others) to shut mines is a reaction to reality, not a reason to get bullish, in our view.”
Its shares closed up 8.45p at 129.1p, meaning the value of Glencore’s stock has nearly doubled in the 10 days since
Shares in the company had been offered in a price range of 180p to 225p, before being narrowed to the lower end of the range at 180p to 185p.
Bankers had to reset the price again to the lower 170p on Thursday evening in a bid to attract more buyers for the shares. Order books closed yesterday on the placing.
The insurer is still on course to raise £180m in the float.
“The IPO market is very tough this autumn,” one banking source said. “There are lots Investec’s analysts sent it crashing as low as 68.57p with a note which warned its shares were virtually worthless if the current low commodity prices were sustained.
Since the end of August, the company has cancelled its dividend, undertaken a $2.5bn placing at 125p a share and put businesses up for sale to assuage investor concerns over its balance sheet.
IG Group’s Alastair McCaig said: “Glencore continues to baffle traders. Although it enjoys a market capitalisation of a major global corporation its shares are now back to last month’s placing level and are showing the sort of volatility normally associated with penny shares.”
Metals were also given support by dovish Federal Reserve minutes earlier this week, which were seen as putting the prospect of a rise in US interest rates this year on the back burner.
Shutting mines is a reaction to reality, not a reason to get bullish
of IPOs out there, so fund managers can look for reasons to leave some of them alone.”
The listing of the payments processing system Worldpay, which is due to enterthe FTSE 100 when it comes to market, was also hit after it slashed the top end of the price range yesterday.
The company will price shares in the flotation between 235p and 250p, from a range of 225p to 260p. At the top of the range, that would value Worldpay at £5.2bn.