Glencore to cut zinc output by over a third

Friday, October 09, 2015

Glencore has announced the decision to cut its annual zinc output by more than a third, as the natural resources group struggles to navigate in a market dominated by weaker prices for industrial metals, cutting its output by 500,000 tpy the trading and mining group is tackling the supply glut head on. Given that Glencore is the biggest miner and trader of the metal, we could see three month zinc futures traded on the LME rebound as the fundamentals swing back into balance. Three month LME zinc prices traded over 6.3% higher from yesterday’s close, opening above $1,700/tonne and moving swiftly past immediate resistance towards the 50 day moving average, as prices targeted $1,772/tonne overnight. However, zinc prices have lost over 26% since peaking at $2,400/tonne earlier this year, as the demand outlook in China deteriorated and steel production continued its steady decline. Near term targets towards $1,800/tonne are in sight but we will watch today’s trading session closely to see if newly found support around $1,762/tonne and then the area around $1,735-55/tonne can be held.

Yesterday’s release of September’s FOMC meeting minutes saw policymakers vote overwhelmingly in favour of holding rates at the current record lows. In a 9-1 vote, policymakers cited global growth concerns as a significant factor in the decision to hold off a rates rise. However, details from the minutes indicated that policymakers still expected a rates rise in 2015, with the recent market volatility and slowdown in China having only a minimal impact on the US economic recovery. While last week’s release of September non-farm payrolls put a dampener on the US economic outlook coming in at 142K against expectations of 200K, yesterday’s release of initial weekly jobless claims came in better than expected, with 263K new claims during the week ending October 3rd against an anticipated 274K claims.

Alcoa reported lower than expected earnings for the third quarter, as a slowing Chinese economy and softer prices throughout much of the year saw EPS drop to 7 cents from 31 cents for Q3 2014. The embattled company announced last month its plan to split into two separate entities, splitting its mining, refining and primary aluminium business from the specialist metals engineering operations in an effort to adapt to the changing market dynamics. Three month LME aluminium prices were up sharply overnight, up 3.8% and tracking the wider base metals complex higher, however, prices remain 12.6% lower year-to-date.

LME zinc prices spike higher on Glencore annoucement 

LMZSDS03 Comdty LME ZINC 3 2015 10 09 07 49 10

Initial weekly jobless claims hover near multi-year lows

INJCJC Index US Initial Jobless 2015 10 09 08 30 48

Events for today

0930

UK

Aug

Trade Balance & Non EU

0930

UK

Aug

Construction Output

1330

US

Sep

Import Price Index

1500

US

Aug

Wholesale Inventories

OE: 

Nov  Brent Crude (ICE) 

Topics: US Fed, Aluminium, LME, Zinc
More from: Kash Kamal