Thanks Glencore: Zinc Rival Plans Expansion as Deficit Seenby
Hindustan Zinc CEO sees deficit on Glencore cut, mine closures
Zinc futures lead base-metal losses in London on Tuesday
Glencore Plc’s decision to chop back zinc output will probably help to swing the global market into a deficit, according to a unit of Vedanta Resources Plc that’s preparing to boost production and take advantage of the shortfall and rising prices.
“With Glencore announcing a 500,000-ton cutback, and closure of Century and Lisheen mines this year, this will take out nearly 1 million tons of metal from the market,” Sunil Duggal, chief executive officer of Hindustan Zinc Ltd., said on Tuesday. “That’s 7 percent of global mine supplies. This could potentially convert a surplus market into a deficit.”
While zinc rallied this month after Glencore announced the plan to cut production by a third, prices have since given back some the gains and Duggal’s comments highlight how one miner’s reductions may be replaced by another’s planned expansion. The Lisheen mine in Ireland, operated by Vedanta, will be closing this year, as is MMG Ltd.’s Century in Australia. Zinc was the biggest loser among base metals in London on Tuesday.
“Sentiment toward zinc swung sharply following Glencore’s curtailment and now appears mixed on whether or not the rally has further legs,” Citigroup Inc. said in a report on Tuesday summarizing findings at LME Week, the gathering of miners and traders in London last week. “Key differences of opinion centered on the degree of confidence that Glencore will follow through on curtailments, and on estimates of refined-zinc inventories.”
Three-month zinc dropped as much as 1.8 percent to $1,762 a metric ton on the London Metal Exchange on Tuesday, and traded at $1,772 by 12 p.m. local time. The metal rallied 10 percent on Oct. 9 after Glencore announced the production-cuts plan, and followed that with a gain to as much as $1,881.50 the next trading day. It remains 19 percent lower this year.
Last week, Tom Albanese, chief executive officer of Vedanta Resources, said the company won’t be following Glencore in cutting zinc output as it’s rational to maintain its low-cost production. With about a third of Vedanta’s pretax earnings coming from zinc, the company can mine the metal at about $1,000 a ton across its global operations, including the value of minerals such as copper and silver that are mined with it, he said.
Hindustan Zinc, India’s largest producer, will spend 83.6 billion rupees ($1.3 billion) over three years to ramp up supply from mines and smelters, according to a statement last week. Zinc output may gain to 1.028 million tons a year from 850,000 tons, it said. Duggal spoke on an analysts’ call.
The global market faces a deficit of about 300,000 tons after the Glencore supply cuts, according to Australia & New Zealand Banking Group Ltd., which doubled its projection from a shortage of 150,000 tons. Zinc is mostly used to protect steel from corrosion.
“The zinc market is expected to tighten with further large mine closures this year,” the World Bank said in a quarterly commodity markets outlook received on Tuesday. “But the tightness is now expected to be smaller than previously thought due to new mine projects, expansions at existing operations, reactivation of previously closed mines, and delayed closures.”
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.