Glencore's Boost for Zinc Prices Fizzles After Less Than a Month

  • Output cuts by biggest producer fail to counter China slowdown
  • Metal had largest price gain since 1980s, then gave it all up

After its biggest leap since at least the 1980s, zinc has tumbled back down to earth.

It jumped more than 10 percent after Glencore Plc, the biggest miner of the metal used to galvanize steel, said Oct. 9 the company would cut production by about a third rather than sell it cheaply. Less than a month has passed and prices are back where they began.

"Here we are a few weeks later and we’ve pretty much erased all those gains,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said by phone. 

Zinc for delivery in three months fell 0.5 percent to $1,675.50 a metric ton at 3:40 p.m. on the London Metal Exchange, little changed from $1,667 at the Oct. 8 close. Prices rose as much as 12 percent Oct. 9, the biggest advance since at least 1989, with Glencore’s announcement suggesting more producers may curb supply.

Zinc has fallen 23 percent this year as slowing Chinese economic growth hurts demand. China’s factory gauges signaled Monday that manufacturing still hasn’t bottomed out.

"For now, all the headlines are all quite negative and the sentiment is still certainly quite negative for China,” Dragosits said. “That’s impacting the price action we’ve seen ever since that zinc production cut headline from Glencore.”

Criticize, Repeat

Baar, Switzerland-based Glencore, up 2.4 percent on Tuesday, has declined 15 percent since reaching an intraday high of 139.70 pence on the day of its announcement. The company has lost 60 percent of its market value this year.

Chief Executive Officer Ivan Glasenberg, after repeatedly criticizing competitors for not curbing supplies of raw materials such as iron ore even as prices slump, has seen some rivals gain from his company’s boost to zinc prices but decline to cut their own output.

Vedanta Resources Plc said it would maintain its low-cost production of the metal, as well as continue with its plans for a $630 million zinc development in South Africa. "You saw Glencore’s announcements reacting to that lower price, which I believe was rational," CEO Tom Albanese said last month. "By keeping our zinc production at a lower cost than the prevailing market price, it’s equally rational to continue to produce our zinc at capacity."

More capacity shutdowns are probably needed to tighten the market, JPMorgan Chase & Co. said Oct. 16. While the bank closed a short-trade recommendation last week, it kept its bearish outlook for prices into the first quarter of 2016. Refined zinc production will exceed demand this year and in 2016, according to ICBC Standard Bank Plc.

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