Zinc and lead prices have quickly given up all of the gains they made after major miner Glencore (L:GLEN) announced plans to cut 500,000 metric tons of its zinc production, along with 100,000 mt of lead output.
Three-month London Metal Exchanges zinc price giving up recent gains. Soure: FastMarkets.
Zinc prices traded last week as low as $1,554/mt, the lowest level since 2009. Last week, Nyrstar (BR:NYR) said it would consider cutting its zinc production which could impact up to 400,000 tonnes per year of zinc concentrates production. However, the news didn’t help prices from falling, as the cuts are yet to be confirmed.
Glencore made clear that its cuts were temporary. Investors see the threat of that supply coming back and seem to not be willing to bet on sustained, higher prices. Moreover, investors hoped to see more zinc cuts from other producers following Glencore’s announcement, but that hasn’t happened yet. Indeed, its Indian rival Vedanta Resources (L:VED) announced it has no intentions to cut production thanks to the low operating costs of its mines.
Three-month lead LME price giving up recent gains. Source: FastMarkets.
Three-month month lead prices also gave up all of their recent gains. Prices traded last week as low as $1,582/mt, the lowest level since 2010.
In addition to investors realizing that there was no demand to back up their trades, we have a rising dollar. A strong dollar makes zinc and lead more expensive, as they are priced in dollars, limiting demand as they become more expensive overseas. It also allows the big miners from Australia and Peru to benefit from cheaper local currencies.
What This Means for Metal Buyers
Not only zinc and lead but the rest of industrial metals are hitting new lows as commodities fall across the board and we still see no end in sight for the overall price collapse. All we are seeing are short-lived rallies followed by sharp declines. Metal buyers may want to think it twice before committing to large volumes in this kind of market.