Madrid 10/05/2016 - A zinc price of $2,100-2,300 per tonne might incentivise Glencore to restart its idled zinc plants delegates said on the sidelines of the MB Zinc conference here.
Glencore surprised the market by slashing 500,000 tonnes of production in October to preserve the value of reserves in the ground until prices recover.
But after it gave no indication on what price level would encourage it bring that shuttered capacity back on line, market participants have wondered what the trigger might be.
"We think that $2,000 per tonne would be a bit low for them to restart as prices would still vulnerable. A substantial addition to the supply side would pressure prices to drop again," a European trader said. "I would say between $2,100 and $2,300 seemed plausible."
LME zinc jumped to $1,958 on April 21, its highest since July 2015, after bottoming out at a six-year low of $1,444 on January 12. It traded recently at $1,897 per tonne, up $49 on Tuesday's close.
Zinc production from Glencore's own sources slumped by 28 percent to 257,000 tonnes year-on-year in the first quarter of 2016 following reductions announced for Australia, Peru and Kazakhstan, it said in its production report.
Its full-year output guidance for 2016 of 1.07 million-1.12 million tonnes is down from 1.445 million tonnes in 2015, it said on May 4.
"As a listed company they would be well-disciplined on cuts and would not easily bring it back unless they are confident," an analyst said. "But I would say that the trigger price could be $2,100 per tonne at least."
Glencore has long-term plans to support zinc prices because it is sitting on large inventories either on-warrant or off-warrant, another delegate suggested. It would therefore be in its interest to bring back on-stream some of its low-cost mines first in 2016 and minimise the downside disruption to prices, he claimed.
"Glencore are now operating under a microscope globally… they cannot take the risk of having too much stock. The surplus in the refined metal would mean that there's no rush to bring back production too soon," he added.
Also, its production cuts do not necessarily have to be rolled back in one go - it could be done in a gradual fashion across different mines, a well-informed source said.
Also, fears that a resumption of production would drag prices down further could undo any previous gains.
"Glencore also have speculative longs so they would be careful in releasing the news. They would definitely factor in the impact that those tonnages would have on prices," a third trader said.
(Edited by Mark Shaw)