(The opinions expressed here are those of the author, a
columnist for Reuters.)
* Commodities powerhouse has 500,000 T of idled zinc
* Zinc gains make it this year's best-performing base metal
* Glencore biding its time; staggered reactivation possible
By Andy Home
LONDON, Dec 2 Glencore is still keeping
the zinc market guessing over when the company will reactivate
its 500,000 tonnes of idled mine capacity.
Since the Swiss commodities powerhouse first announced its
intention to mothball about 4 percent of global capacity in
October 2015 the London zinc price has risen from $1,700 a tonne
to $2,680 at the time of writing.
True, zinc has been on the same Chinese price rollercoaster
as the rest of the metals complex in recent days. But there is
accumulating evidence, to quote Glencore boss Ivan Glasenberg,
that "tightness is starting to flow through the entire supply
chain and is beginning to reach the metal market".
Bringing back half a million tonnes of latent mine capacity
would, of course, change that dynamic and Glencore's core
position is that it will only do so "at the right time".
By which it means a time when it will not have a negative
effect on price or Glencore's profit margins.
In other words, the guessing game continues.
When pressed by analysts on the company's investor day,
Glasenberg and finance chief Steven Kalmin gave a slightly more
nuanced assessment of when the time might be right.
BIG BANG OR LITTLE BANGS?
The reactivation, Kalmin said, might be staged over a period
of time as a way of testing the market.
Each mine, added Glasenberg, could take at least nine to 15
months to reactivate, with the option of bringing them back one
by one rather than all together.
No big bang then, just a series of little bangs.
Glencore's cuts have been spread across four mines.
The biggest volume, about 380,000 tonnes of annual capacity,
was taken out at the McArthur River and Mount Isa complexes in
A further 80,000 tonnes was shuttered at the Iscaycruz mine
in Peru while Kazakhstan operations accounted for 40,000 tonnes.
It's an interesting series of levers that can be pulled when
Glencore deems the time is right.
The company doesn't have to be in too much of a rush either.
Its zinc production is already due to rise by 90,000 tonnes to
1.19 million tonnes next year.
That's thanks to higher production at the Antamina mine in
Peru, where other joint venture partners have already flagged
the shift in sequencing to a zinc-rich part of the deposit.
Glencore's zinc-related costs, meanwhile, have been cut
sharply over the past couple of years, from 41 cents per lb
($904 a tonne) in 2015 to a forecast negative 14 cents in 2017.
The shift to negative costs results from net credits from
by-products such as lead and gold, as well as favourable foreign
exchange movements and operational efficiencies and savings.
TIGHTNESS DOWN THE CHAIN
Glasenberg said that Glencore will keep monitoring the
market, particularly global smelter output, before pulling the
trigger on restarts.
All are waiting to see tangible evidence that tightness in
the raw materials segment of the supply chain is translating
into a tighter market for refined metal.
The steady decline in concentrate treatment charges attests
to an increasing scarcity of raw material.
So, too, does the drop-off in China's concentrate imports
this year -- down 42 percent to 1.54 million tonnes (bulk
weight) in the first 10 months of the year. Also worth noting is
the sharper 51 percent decline in imports from Australia, where
the bulk of Glencore's cuts have taken place.
So far, however, there is little sign of Chinese smelters
reducing run rates. Nor have imports of refined metal
accelerated, as might be expected if the raw materials crunch
were really biting.
Refined zinc imports of 375,500 tonnes so far this year are
pretty much flat on year-ago levels.
That said, there are tentative signs of that creeping
tightness Glasenberg mentioned.
LME zinc stocks have been drifting lower. At the current
441,500 tonnes the headline figure is down by 20,050 tonnes this
Zinc bulls have been caught out by deceptive LME stock
movements in the past, but it's noticeable that the last
significant inflows took place two months ago.
They came at New Orleans, where metal has been circulating
between LME and non-LME sheds for several years, but there is a
sense that U.S. port's zinc merry-go-round is slowing.
Physical premiums for refined zinc, meanwhile, are creeping
In Asia, physical zinc is being offered at between $125 and
$135 a tonne over LME cash, up by about $20 over the past couple
of months, according to LME broker Triland Metals.
Traders are bullish on premiums as they try to position
themselves for an expected rise in 2017 terms, Triland said.
Acting as a buffer between the concentrates and refined
metal parts of the chain are off-market inventories.
The logical inference is that concentrate inventories have
been drawn down, particularly in China, and that refined metal
stocks could also be declining.
But without harder confirmation that the market for refined
zinc is tightening, Glencore can be expected to hold its fire on
The most likely scenario is that it will continue to do so
at least until next year's benchmark concentrate terms are
finalised. This usually happens around the time of the
International Zinc Conference in the United States, scheduled
for late February.
From then on the guessing game will move up a gear, though
Glencore's appears to be leaning towards an incremental phase-in
of idled capacity over many months.
Glencore, it's worth remembering, has a point to prove with
these cuts over and above its own margin metrics.
It was alone in responding to the zinc price decline of 2015
with major cutbacks, which have undoubtedly played a role in the
subsequent price recovery.
But for the policy to be seen to have really worked,
Glencore has to complete the second leg of capacity restoration
without destroying the price.
That this may prove the trickier part of the exercise is not
lost on Glasenberg. "We're going to be very careful," he said.
(Editing by David Goodman)