Copper gains on output cuts but China worries persist

Mining giant Glencore looks to sell copper mines in Australia and Chile to reduce its debt.

BAAR, SWITZERLAND (GLENCORE) – Copper rose on Monday after recent production cuts by Glencore boosted sentiment towards base metals though analysts warned the shift in output may not be enough to offset weak demand growth in China.

Benchmark three-month copper on the London Metal Exchange climbed 0.8 percent to $5,329.5 a tonne by 1015 GMT, after nearing Friday’s three-week high of $5,356 in early trade.

The metal rose more than 3 percent in the previous session, swept higher in a broad metals rally triggered by news Glencore will cut zinc output by 500,000 tonnes, removing about 4 percent of global supply from the market.

Copper prices have rebounded from six-year lows below $5,000 touched in August, helped partially by planned production cuts.

“The ongoing debt restructuring and cost-cutting plan of ten billion will remain the focus, but of course there will still be speculation that they will are going to have to further raise capital or indeed some have speculated that the company might maybe be taken private again, so there’s great uncertainty out there,” said BGC Partners Market Analyst, Mike Ingram.

Glencore said last month it was suspending some copper operations at its Katanga Mining unit in Democratic Republic of Congo and Mopani Copper Mines in Zambia for 18 months, removing 400,000 tonnes of cathode from the market.

Prices have also been supported by falling inventories, which have dropped by more than 18 percent from a peak in late August. Copper stocks in LME-approved warehouses fell to a seven-month low of 303,200 tonnes on Monday.

But analysts remained unconvinced that the dip in supply will offset slowing demand growth from China, which accounts for nearly half of global copper demand.

“Despite the magnitude of the recent rally, we do not believe that any data releases or company announcements over the past two weeks suggest a change in commodity fundamentals,” Goldman Sachs said in a note.

“In metals markets, announced production cuts still fall far short of the quantity of metals demand at risk from further slowdown in China,” it said.

Lead rose 1.4 percent to $1,804.5 a tonne, tin dipped 0.3 percent to $16,095 and nickel rose 2 percent to $10,705 per tonne.

Three-month aluminium gained 0.7 percent, rising to $1,623.5 a tonne.

LME zinc was up 1.9 percent at $1,870 a tonne, after having rallied 2.5 percent to $1,881.50 earlier in the session. The metal soared 10 percent on Friday in its largest single-day gain in a decade following the Glencore announcement.

The production cutback is expected to push the zinc market into a deficit of 150,000 tonnes next year from a surplus of 88,000 tonnes in 2015.