Zinc prices yesterday surged after Glencore PLC, the biggest producer of the metal, said it plans to cut output by about a third, adding to signs that commodity producers are willing to scale back supplies to combat slumping prices, boosting the prospects for a global deficit.
The metal, which is used to galvanize steel, jumped as much as 7.7 percent, the biggest intraday gain since 2009, to US$1,795 per tonne on the London Metal Exchange and traded at US$1,791 as of 3:14pm in Shanghai.
Zinc prices had slumped 23 percent this year as of Thursday’s close as slowing economic growth in China hurt the outlook for consumption.
Glencore chief executive officer Ivan Glasenberg has challenged rival miners this year to rein in output amid a commodities rout, saying in May that oversupplying markets regardless of demand damages the industry’s credibility.
Glencore has also cut copper and coal production this year.
Glencore shares rose 6.6 percent in Hong Kong trading, while other producers of the metal surged.
In Tokyo, Toho Zinc Co shares were up as much as 9.2 percent, giving it the second-biggest gain among shares listed on the Nikkei 225, while Mitsui Mining & Smelting Co, Japan’s top zinc smelter, saw its shares gain as much as 5.4 percent.
Shares in China’s biggest producer, Zhuzhou Smelter Group Co (株州冶鍊集團), increased by their daily trading limit of 10 percent, while those of India’s Hindustan Zinc Ltd were up as much as 6.4 percent to a two-month high.
Annual zinc supply is to be reduced by about 500,000 tonnes 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 are to be reduced, Glencore said in a statement.
That is about 3.5 percent of global refined supply this year, according to Bloomberg calculations based on Morgan Stanley production data. The curbs are also to affect production of other metals, including lead.
“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 remains positive about the medium and long-term outlook for zinc, lead and silver prices,” he said.
Prior to Glencore’s announcement, Morgan Stanley estimated in a report on Tuesday last week that the global zinc market would have a deficit of about 120,000 tonnes this year, 50,000 tonnes next year and 450,000 tonnes in 2017.
It forecast mine production to rise 2.7 percent next year and demand by 4 percent, leaving the market in a modest deficit, according to a separate note on Tuesday.
Lead supplies are to contract by about 100,000 tonnes, Glencore said in the statement.
Prices of all metals, except tin, traded in London gained at least 3 percent, with lead rising as much as 4.6 percent and copper climbing as much as 3.3 percent.
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