Investors Aren’t Convinced by Glencore PLC’s Resource Price Optimism
Glencore PLC (LON:GLEN), a commodity trader and extractor, and one of the barometers for commodity demand, has cut its overall production in the third quarter of 2016. Investors were not excited by the news. They remain skeptical about Glencore’s suggestions that the resource market will improve. This would imply the prices for industrial metals, such as copper or zinc, might rise. Glencore stock dropped slightly as the cuts were announced last week. (Source: “Glencore production falls in most commodities,” MarketWatch, November 3, 2016.)
Glencore has cut and/or suspended production in most departments. The most affected commodities are coal, oil, copper, and zinc. Copper output has been slashed six percent from a year ago while zinc will lose 30%. Coal production dropped 11%. Glencore sold its Optimum Coal mine in South Africa. In South America, Glencore cut back on production from all major mines. Overall, Glencore expects to produce 1.4 million tons of copper this year, about 100,000 fewer tons than last year. (Source: Ibid.)
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Predictably, oil is where Glencore has made the most cuts. It has reduced its oil-drilling project participation by 25%. The cuts have resulted mostly from the depletion of its resources. Glencore PLC has not yet found suitable replacement projects, but, the company might not reengage in crude until sustained oil price increases are seen. The one bullish resource is zinc. Production of zinc has risen 20%.
Credits: Flickr.com/Mendoza Economico
Zinc has been the best-performing commodity in 2016, alongside other steel alloy ingredients such as iron ore and coking coal. But, while demand may have helped, zinc’s rise owes more to a deliberate cut in supply. In 2015, two mines shut down, one in Australia and the other in Ireland. That eliminated 630,000 tonnes in output. Those cuts, and the depletion of the Brunswick and Perseverance mines in Canada in 2012, have eliminated over a million tonnes from the market. (Source: “Glencore closes another zinc mine,” MINING.com, October 31, 2016.)
