Under pressure mining giant Glencore is cutting its zinc production by a third in order to boost the price of the metal — and the move is doing exactly that.
Glencore announced the cuts in a statement to the market on Friday. The reduction in its operations in Australia, Kazakhstan, and South America will reduce global zinc supply by 500,000 tonnes per year.
As a result, the price of zinc is jumping — zinc futures are up 6% at 7.25 a.m. BST (2.25 a.m. ET).
Glencore says the “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.”
Glencore controls a huge chunk of global zinc production so reducing its output by a third will have a big impact. Citi estimates in a note on Friday that the global zinc market is 14.5 million tonnes a year, so a 500,000 tonne annual reduction is not trivial.
But the production cuts, which Glencore says are temporary, are going to mean job cuts. Glencore doesn’t specify how many but says it will “engage with all employees and put in place support services to assist people who may be affected as a result of these changes.”
Glencore shares have been on a wild ride in recent weeks as investors fretted about how the commodity trading and mining giant will cope with its massive $US100 billion (£64 billion) debt pile in a low copper price environment.
Boosting zinc prices while at the same time cutting costs is another move to reassure investors that it is doing its best to put itself on a sure footing.
Citi says in its note Friday: “We believe Glencore is showing industry discipline by cutting unprofitable tonnes and saying it is worth more value to leave the tonnes in the ground.”
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