September 7, 2015 / 1:00 PM / 3 years ago

Glencore copper output cut not a panacea for prices

* Glencore shares vs copper:

* Copper may be moving towards balanced market

* Mine supply also underperforming

* Glencore move follows Freeport

By Pratima Desai

LONDON, Sept 7 (Reuters) - Glencore’s move to slash copper output will help shore up prices, but significant gains are unlikely because supplies are still adequate and growth in demand is weak, particularly from top consumer China.

The London-listed mining giant said it plans to suspend 400,000 tonnes of copper output at its Katanga Mining unit in Democratic Republic of Congo and at Mopani Copper Mines in Zambia over the next 18 months.

“It’s probably not enough to see prices go up, but it certainly supports the market,” said Grant Sporre, head of metals research at Deutsche Bank.

“It also ensures that copper is probably not going to fall in the same way that iron ore and met coal have done.”

Benchmark copper on the London Metal Exchange rose about $90 to near $5,200 a tonne on Monday after Glencore’s announcement, but that is still about 20 percent below its 2015 peak at $6,481 a tonne.

Prices of the metal used in power and construction hit a six-year low of $4,855 a tonne last month on escalating worries about economic growth and demand in China, which accounts for about half of global consumption.

“It will help the market, people weren’t expecting significant cuts,” said David Wilson, analyst at Citi. “We’d already been assuming a deficit market for next year because of mine supply underperforming significantly.”

Power outages, strikes, floods, drought and lower grade ore have already cut mine supplies this year.

Last month U.S. miner Freeport-McMoran Inc became one of the first big global mining companies to begin cutting copper production due to slumping prices.

Glencore’s 400,000-tonne cut is a fraction of global demand estimated at around 22 million tonnes this year, but it could mean a more balanced market this year and possibly a small deficit next year.

“It’s a meaningful number in terms of swinging the market from oversupply to deficit,” said John Meyer, mining analyst at SP Angel. “It could squeeze the short sellers.”

Funds and many traders have sold copper on the expectation of lower prices in the future due to a stronger dollar, which makes commodities more expensive for non-U.S. firms, and weaker demand from China.

Growth in Chinese demand for copper is expected to have fallen sharply this year from levels above five percent last year.

“Estimates we are seeing ... are in the low single digits,” INTL FCStone analyst Edward Meir said in a note.

“Some are even speculating about negative numbers when 2015 is finally put to bed.”

Data from the International Copper Study Group shows the copper market in January to May saw a surplus of 4,000 tonnes compared with a deficit of 537,000 tonnes in the first five months of last year.

Deutsche was forecasting a surplus of 350,000 tonnes for 2016. “They are going to remove effectively about 300,000 tonnes for next year,” Sporre said. “I know they say 400,000 tonnes, but that’s for an 18-month period. So that brings the market pretty much into balance for next year.” (Additional reporting by Eric Onstad; editing by Susan Fenton)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below