- Pimco says worst of commodities collapse is probably over
- Zinc surges as Glencore cuts output; company's shares climb
Commodities headed for the biggest weekly advance since 2012 as Pacific Investment Management Co. said the worst of the collapse is probably over, helping mining companies surge and Glencore Plc double from its record low set last month.
The Bloomberg Commodities Index advanced 4.4 percent this week, led by a 10 percent jump in crude oil on speculation an increase in demand will ease a global glut. Zinc rallied the most on record as Glencore, the biggest producer of the metal, said it plans to cut output by about a third.
The rebound in raw-materials prices from a 16-year low reached in August has eased pressure on producers struggling with high debts and who’ve been forced to reduce output, shelve exploration projects and shutter operations from Arctic oilfields to copper mines in Africa. Those cutbacks will help put a floor under prices, according to Pimco, which manages $15 billion in commodity assets. The FTSE 350 Mining Index jumped 18 percent this week, the most in six years.
“Every single producer has been cutting capex, exploration, no one is building anything new,” said Wayne McCurrie, who helps manage $8 billion at Momentum Holdings Ltd. in Pretoria, South Africa. “At some point we’ll start to get equilibrium between supply and demand and perhaps that point is now. The world has had an oversupply problem and oversupply never lasts forever.”
Glencore gained as much as 11 percent to 134.45 pence in London. The commodity trader and miner has almost doubled from the low on Sept. 28, when it plunged by the most yet on concern about its $30 billion debt load amid the commodities rout. The stock has rebounded after the company said its business was “robust” and it had secure access to funding. Analysts including Citigroup Inc. had called the selloff unjustified and recommended buying the shares.
Annual zinc supply will be reduced by about 500,000 metric 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 percent 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.
Zinc surged as much as 11 percent, the most since at least 1989, to $1,850 a ton on the London Metal Exchange. The other five main metals traded on the bourse advanced, with copper climbing 4.1 percent.
Still, the slowdown in China’s economy, the world’s second-largest, will provide headwinds to prices of industrial metals such as copper and aluminum, Goldman Sachs Group Inc. said Thursday in a research report. The Asian nation’s shift away from a metals-intensive, investment-led growth model will probably be permanent, damping consumption, it said.
Industrial metals prices have slumped 19 percent on the London Metal Exchange this year amid the slowest Chinese expansion in a generation.
"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 senior commodities economist at Capital Economics Ltd. in London. "We’re of the view things will get better from here in China."
Gold climbed as much as 1.7 percent to a more than six-week high of $1,157.83 an ounce after minutes of the Federal Reserve’s latest meeting hinted that the U.S. central bank won’t rush to raise interest rates. Higher borrowing costs curb the appeal of bullion, which doesn’t pay interest or give returns like other assets such as bonds and equities.
Boliden AB led gains among producers on Friday, rising 13 percent, while Vedanta Resources Plc climbed 12 percent and Anglo American Plc advanced as much as 6.9 percent.
"There have been quite a few announcements on cutbacks to supply that have given a boost to prices," Bain said. "In our view, the recent falls weren’t justified by the fundamentals. When you get prices falling as much as they did, you can get quite an equivalent strong bounce back as investors clear their short positions or even go long."