This week’s news starts in a small town called Baar in Switzerland with a population of 23,228 (smaller than Alice Springs) and home to Ferrari Formula one drivers Kimi Raikkonen and Sebastian Vettel. The town offers very low taxes and in an incredible coincidence is also the headquarters of the Glencore, the world’s largest commodity trading and mining company.
Glencore was founded by Marc Rich, a billionaire who became famous for trading oil with Iran and South Africa during periods when both countries where subject to embargoes and has a 60% global market share of international tradeable zinc and 50% global market share of international tradeable copper.
Glencore also has ‘financial system exposure’ of around US$100 Billion including $50billion of traditional debt and bonds. Last week it was reported that brokers were questioning the ongoing viability of the company given its debt and current commodity prices. This then spooked the markets given its debts are widely thought to implicate all the major commodity players and prices started to fall.
On Friday, Glencore responded by announcing it would cut 500,000 tonnes of Zinc production which resulted in the Zinc LME price surging 12%. It also pledged copper and coal production cuts which also caused these metals to rally. A happy ending to today’s tale.
Please find the following for your perusal;
***DJ Copper Prices Rise on Supply Cuts Announcements But China Still Weighs on Metals*** By Georgi Kantchev
LONDON–Copper prices rose on Monday as sentiment continued to improve on announcements of supply cuts, but worries about China still weighed on the metals market.
The London Metal Exchange’s three-month copper contract was up 0.5% at $5,315 at the PM kerb close.
Switzerland-based Glencore PLC said on Monday it could sell its Cobar underground mine in Australia’s New South Wales and its Lomas Bayas open-pit operation in northern Chile, as the commodities group races to shore up its balance sheet and restore investor confidence.
In recent weeks, Glencore has also announced cuts to its copper production operation, which will amount to 1.8% of last year’s global copper output, according to Commerzbank.
A weaker dollar also boosted metals prices on Monday. The Wall Street Journal Dollar Index, which tracks the dollar against a basket of other currencies, fell 0.2%. As metals are priced in dollars, they become more attractive for holders of other currencies as the greenback depreciates.
Gains in copper and other base metals, however, remain capped due to continued worries about the Chinese economy. China accounts for nearly half of total global zinc consumption, 45% of global copper consumption and 40% of lead production. Fears about China’s economy have been a major factor in the commodity price slump over the summer.
“We view the price-related copper supply cuts primarily as confirmation of weak demand,” said analysts at Goldman Sachs. “We continue to expect that copper prices will fall to $4,800 a ton by year-end, and to $4,500 a ton [by] year-end 2016. Overall, we continue to see the risks surrounding these forecasts as skewed to the downside.”