Glencore keeps zinc market guessing on capacity

Glencore is still keeping the zinc market guessing over when the company will reactivate its 500,000 tons of idled mine capacity.
Since the Swiss commodities powerhouse first announced its intention to mothball about four percent of global capacity in October 2015 the London zinc price has risen from $1,700 a ton 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 tons 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.
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 tons of annual capacity, was taken out at the McArthur River and Mount Isa complexes in Australia.
A further 80,000 tons was shuttered at the Iscaycruz mine in Peru while Kazakhstan operations accounted for 40,000 tons.
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 tons to 1.19 million tons 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 ton) 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 favorable foreign exchange movements and operational efficiencies and savings.
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.
Refined zinc imports of 375,500 tons so far this year are pretty much flat on year-ago levels.
That said, there are tentative signs of that creeping tightness Glasenberg mentioned.
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 US port’s zinc merry-go-round is slowing.
Physical premiums for refined zinc, meanwhile, are creeping higher.
In Asia, physical zinc is being offered at between $125 and $135 a ton 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.

Source: Arab News