Glencore prioritizes value over volume when it comes to production, Ivan Glasenberg said, pointing to its moves to reduce capacity in past cycles when supply has outweighed demand.
“When we realize that commodities are not required in the world, we do not wish to supply a market that does not require them,” he told shareholders during the company’s annual general meeting, held in virtual space on Thursday May 28.
“We have reacted with some of the production at our various operations to take into account the demand destruction across the world, and therefore do not bring excess commodities into a market that does not require them,” he said.
With Glasenberg at the helm, Glencore has long warned against the tendency of the mining industry to crank up production in pursuit of lower costs, which would destroy value not just in the price but ultimately for itself.
In the past decade, it has often moved to reduce output to avoid oversupplying its key commodity markets.
In 2015, the company cut around one-third of its global zinc production, or 500,000 tonnes, due to low prices, along with around 100,000 tonnes of lead production. The same year, it made cuts of 455,000 tonnes of copper from its African operations.
Last year, Glencore shut its Mutanda copper-cobalt mine in the Democratic Republic of the Congo due to slumping cobalt prices.
Harsh lessons were learned in the aftermath of the 2007-08 global financial crisis, when miners continued to produce raw materials even while demand in their key markets eroded and prices – along with profits – began to fall.
The over-investment and debt-binge eventually took its toll and led to an age of austerity that tempered the sector’s herd mentality and forced miners into a period of cost-cutting that has largely continued.
During the Covid-19 pandemic, the majority of Glencore’s industrial assets have continued to operate relatively normally, but a number of operations have been suspended where national and regional lockdowns or other circumstances have required.
Glencore has cut its own forecasts for 2020 production across its commodities mix as a result.
“We believe we are well-positioned to navigate the current challenges,” Glasenberg said.
“We have a flexible business model that adapts quickly to the changing conditions, a unique combination of industrial assets and marketing, a diversified portfolio of low-cost commodities that will underpin the energy and mobility transition, and high-quality thermal coal that provides access to affordable and reliable energy,” he said. “The marketing business is very resilient, even to commodity prices moving up and down.”