Commodities rout ‘almost over’

File picture: Supplied

File picture: Supplied

Published Oct 9, 2015

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Pretoria - Commodities headed for the biggest weekly advance since 2012 as Pacific Investment Management said the worst of the collapse is probably over, helping mining companies surge and Glencore to almost double from its record low set last month.

The Bloomberg Commodities Index advanced 3.9 percent this week, led by a 10 percent jump in crude oil on speculation an increase in demand will ease a global glut. Zinc rallied the most on record as Glencore, the biggest producer of the metal, said it plans to cut output by about a third.

The rebound in raw-materials prices from a 16-year low reached in August has eased pressure on producers struggling with high debts and who’ve been forced to reduce output, shelve exploration projects and shutter operations from Arctic oilfields to copper mines in Africa. Those cutbacks will help put a floor under prices, according to Pimco, which manages $15 billion in commodity assets. The FTSE 350 Mining Index jumped 18 percent this week, the most in six years.

“Every single producer has been cutting capex, exploration, no one is building anything new,” said Wayne McCurrie, who helps manage $8 billion at Momentum Holdings in Pretoria, South Africa. “At some point we’ll start to get equilibrium between supply and demand and perhaps that point is now. The world has had an oversupply problem and oversupply never lasts forever.”

Glencore rises

Glencore gained as much as 7 percent to 129.1 pence in London. The commodity trader and miner has almost doubled from the low on Sept. 28, when it plunged by the most ever on concern about its $30 billion debt load amid the commodities rout.

The stock has rebounded after the company said its business was “robust” and it had secure access to funding. Analysts including Citigroup had called the selloff unjustified and recommended buying the shares.

Annual zinc supply will be reduced by about 500,000 metric tons with the suspension of the Lady Loretta mine in Australia and the Iscaycruz project in Peru, while output from other projects in Australia, South America and Kazakhstan will be reduced, Glencore said in a statement.

That’s about 3.5 percent of global refined supply this year, according to Bloomberg calculations based on Morgan Stanley production data. The curbs will also affect production of other metals, including lead.

Zinc rallies

Zinc surged as much as 10 percent, the most since at least 1989, to $1,834 a ton on the London Metal Exchange. The other five main metals traded on the bourse advanced, with copper climbing 3.7 percent.

Gold climbed as much as 1.4 percent to a two-week high of $1,154.79 an ounce after minutes of the Federal Reserve’s latest meeting hinted that the US central bank won’t rush to raise interest rates. Higher borrowing costs curb the appeal of bullion, which doesn’t pay interest or give returns like other assets such as bonds and equities.

Vedanta Resources led gains among producers on Friday, rising 9.5 percent while Anglo American advanced as much as 5.7 percent.

BLOOMBERG

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