LME MORNING – Metals hit multi-week highs, zinc boosted by Glencore output cuts

Base metals rose strongly during Friday LME premarket trading, setting multi-week highs across the board on a combination of technical systems-buying and short-covering.

This was principally triggered by news of zinc/lead output cuts by Glencore, which galvanised a moribund, drifting LME, traders said.

Zinc jumped to its highest for around a month, lead its strongest for nearly three months and copper its best for some four weeks amid strikes in Chile. In others, aluminium moved to its best for some three weeks and nickel and tin to levels last seen early in August.

“It is more active today, and a lot of the shorts have had to cover on the back of the news. Coming up to the weekend and LME Week and people travelling, they don’t want to be carrying exposed positions,” a trader said.

“Mind you, they are coming off very low floors so there is a long way to go to change the general direction of travel – we’ll see if these levels get sold into, as recent rallies have,” the trader said.

Zinc jumped more than nine percent to hit $1,834 per tonne, its highest since September 9 before settling at $1,821, well above the Thursday close of $1,677, with Select volume punchy at above 14,000 lots.

Troubled trader/producer Glencore said it will cut its annual zinc production by about 500,000 tonnes to preserve the value of its reserves until prices rebound. It will also trim lead production by some 100,000 tonnes.

The move shows leadership in cutting output to help support prices and is more meaningful than the coal supply cuts it previously made, Investec said.

“It also highlights the troubles faced by the miner since it needs to cut its debt levels and reducing output implies that some of this output may not be cost effective at current prices,” the broker added.

Today, Glencore’s share price rose more than five percent to 127 pence, the highest for around a month – in September it was at an all-time low below 70 pence.

Today’s fundamentally based moves in the metals complex diverted attention from the release of the US Federal Open Market Committee’s September minutes on Thursday evening. These suggested that policymakers were unlikely to rush to tighten rates amid concerns over a China-led global economic slowdown.

Investec noted that there had been a heavy fall in auto production in China – cars and heavy vehicles.

“The sheer magnitude and speed of the fall in demand estimates for cars and heavy trucks is staggering,” it said. “The fact that this sector is a major consumer of aluminium, copper and zinc should send a chill through those who, misguidedly, think that the commodity cycle is turning.”

In other metals, copper rose as high as $5,356, a four-percent gain from yesterday, when it ended at $5,135. It found support from a strike at Codelco – the producer said on Thursday that workers at its Radomiro Tomic mine in Chile started a strike after rejecting a new collective agreement offer.

Operations, however, have not been affected – the company had activated a contingency plan to continue operations and guarantee the safety of employees who choose to keep working.

Warehouse stocks fell a net 250 tonnes to 305,225 tonnes, the lowest since early-March.

Lead rose $101 to $1,774, its strongest since late-July, while inventories were down 700 tonnes at 156,575 tonnes, the lowest since mid-June. Zinc stocks were 575 tonnes lower at 587,350 tonnes.

Aluminium was up $60 at $1,621, with inventories falling 7,900 tonnes to 3,130,775 tonnes, the lowest once more since February 2009. Nickel was up $390 at $10,565 – inventories declined 2,100 tonnes to 441,492 tonnes, the lowest since May.

Tin at $16,010 was $110 higher, with inventories dropping 60 tonnes to 4,605 tonnes, the lowest since December 2008 again.

Steel billet, cobalt and molybdenum were neglected, with no inventory movements.

(Additional reporting by Kathleen Retourne, and Vivian Teo, editing by Mark Shaw)