Glencore set to arrest its zinc output by a third

GLENCORE plans to cut zinc production by about a third after already curbing copper and coal output as it navigates the commodity collapse on September 28 that briefly wiped $6 billion (R80bn) from its market value.

The Swiss mining and trading company is restructuring its finances and operations as it seeks to allay investor concern it carries too much debt amid cratering raw materials prices.

As one of the biggest suppliers of base metals such as copper, nickel and zinc, Glencore’s metals and minerals businesses delivered about 30 percent of its revenue last year.

“Glencore is showing industry discipline by cutting unprofitable tons and saying it is worth more value to leave the tons in the ground,” Heath Jansen, a Citigroup analyst, wrote in a report on Friday. “We expect assets to remain out of production until zinc prices improve materially and stay higher.”

The move is unlikely to affect analysts’ earnings estimates or cash-flow

The curbs would shave about 100 000 tons from its fourthquarter output.

forecasts, as the operations are unprofitable at current prices, according to Citigroup.

Annual zinc output would fall by about 500 000 tons as Glencore suspended or cut output from mines in Australia, Peru, and Kazakhstan, it said on Friday. Global production was 13.3 million tons in 2014, according to the US Geological Survey, making the reduction equivalent to almost 4 percent of world output.

“Maybe they are the trailblazer, as there’s the spectre of oversupply in many commodities,” James Wilson, a Morgans Financial analyst, said in Perth. “If you want higher prices for a commodity, you need to create price tension and to have less product in the market.”

The curbs would shave about 100 000 tons from its fourthquarter output, Glencore said, while production of other metals, including lead and silver, would also be affected. Zinc, which helps protect steel from corrosion, rose as much as 9.4 percent on the London Metal Exchange, the most since October 2008. Prior to Glencore’s announcement, it had fallen 23 percent this year.

“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 had risen 7 percent in London to 129.10 pence (R26.35) at the close of trade on Friday.

The company’s main listing in London saw shares tumble 29 percent on September 28, after analysts expressed worries over the pace of its $10bn debt-reduction programme.

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.

Glencore’s decision “may be an indication of just how weak demand is at the moment”, Ben Crowley at Macquarie said.

The Baar, Switzerland-based company plans to shutter copper mines in Africa accounting for about 2 percent of global supply after prices in August touched a six-year low. – Bloomberg