- With the exception of gold and coal, production for all commodities has experienced a decline
- Nickel and ferrochrome are expected to decrease by 9% and 16% respectively in the current fiscal year
- The decrease in production aligns with the global trend of easing commodity price
Harare- Glencore Private Limited Company experienced a significant decline in production during the third quarter ended 30 November 2023, across several major commodities, with the exception of gold and coal. Copper, cobalt, zinc, nickel, ferrochrome, and coal all saw decreases compared to previous years' performance. Glencore supplies cobalt and nickel to Electric Vehicle producer Tesla while it mines coal in South Africa. In Zambia it disposed of its coal mining assets while in Zimbabwe it exited its fuel trading business over a decade ago, while it continues to help the country source energy.
The Swiss company operates in diverse segments such as Metals and Minerals and Energy Products, with involvement in the production and marketing of several commodities. The company's activities encompass the production and marketing of copper, zinc, lead, nickel, ferroalloys, alumina, coal, platinum, and gold.
Due to the decline in production, Glencore has revised its full-year guidance for certain commodities, particularly cobalt, nickel, and coal. Among these, nickel is expected to experience a significant decline of 9% compared to previous expectations. This decrease is due to several factors, including a longer recovery period following the extended strike action at the Raglan mine in 2022, maintenance outages at the Sudbury smelter, and a downward revision in production expectations for Koniambo.
These circumstances have contributed to the revised lower output forecast for nickel in the full-year guidance provided by Glencore.
Ferrochrome production is projected to decrease by 110kt (8%) due to lower production in the second half of 2023. This decline is a result of additional smelter offline days and further curtailments implemented in response to market conditions in the ferrochrome industry. Glencore has made these adjustments to align with the prevailing conditions and optimize its operations. However, the full-year production of chrome ore is anticipated to be only slightly lower than the levels recorded in 2022.
The decline in production output coincides with a broader decrease in global commodity prices, which can be attributed to several factors. Geopolitical tensions between Europe and Russia have had an impact on market sentiment and contributed to a decline in commodity prices.
Additionally, a slowdown in the Chinese economy has also played a role in the weakened demand for commodities, further affecting global prices. These combined factors have created a challenging environment for commodity producers, leading to a decline in production and potentially impacting their financial performance.
The current market conditions, characterized by falling global metal prices and depressed demand from major economies such as China, Europe, and the United States, present both challenges and opportunities for Glencore.
On one hand, increased production in the face of depressed demand can lead to excess inventory and higher production costs relative to total revenues. This can be detrimental to the company's profitability.
If Glencore adjusts its production output to match the lower demand, it can avoid selling commodities at very low prices or accumulating excess stock. This approach can help mitigate potential losses and preserve the company's financial stability.
Considering the ongoing geopolitical tensions, such as Russia's conflict with Ukraine and Israel's conflict with Hamas, the global prices for metals, excluding gold, are likely to remain low. These tensions have involved major economic players like the UK, EU, China, and the USA, further adding to the uncertainty and potentially sustaining low commodity prices.
In such an environment, gold often serves as a safe-haven asset, and its price may be more resilient compared to other metals. Investors tend to turn to gold as a store of value during times of geopolitical and economic uncertainty. To address inflationary pressures, from geopolitical tensons, major economies are maintaining elevated interest rates, which have implications for productivity levels. The higher interest rates can impact the willingness of businesses to borrow and invest, potentially dampening productivity.
Ultimately, the impact of elevated interest rates on major economies and reduced borrowing and investment has repercussions on global metal prices. The decrease in demand resulting from lower investment and consumer spending is leading to a decline in global demand for metals. This reduced demand will exert downward pressure on metal prices as the market becomes less active and supply outweighs demand.
In the short term, the Group can capitalize on the higher prices of gold, which is currently fetching favourable prices on the market. Despite the decline in production across other commodities, the Group's gold production has remained steady and even increased from 504 thousand ounces to 544 thousand ounces year-to-date, spanning from January to October 2023.
Also, the prices of gold have been surging, with the market price surpassing the US$1900-mark last week on Friday. This upward trend in gold prices presents an advantageous opportunity for the Group to benefit from higher revenues and potentially offset any challenges posed by the decline in production of other commodities.
Main Q3 production stats
During the period, Glencore's own sourced copper production amounted to 735,800 tonnes, which represented a 5% decrease of 34,700 tonnes compared to the same period in 2022. This decline was primarily driven by the sale of Cobar in June 2023 and lower copper by-product production outside the Copper department.
Cobalt production for the period reached 32,500 tonnes, which was a slight 2% decrease from the 33,100 tonnes produced in 2022. Zinc production also experienced a decline, totalling 672,100 tonnes and reflecting a decrease of 27,500 tonnes. The decrease in zinc production was primarily attributed to the disposals of South American zinc operations in 2022, accounting for 23,600 tonnes, and the closure of Matagami, which accounted for 17,300 tonnes. However, this decline was partially offset by stronger production from Kazzinc (Zhairem) and Antamina.
Nickel production saw a significant plunge of 16% to 68,400 tonnes, representing a decrease of 13,200 tonnes compared to the same period in 2022. This decline was primarily due to higher third-party production at INO as a result of the strike at the Raglan mine in 2022, which affected Glencore's own sourced production.
The period saw a decrease in attributable ferrochrome production, which amounted to 873,000 tonnes, reflecting a decline of 237,000 tonnes or 21% compared to the same period in 2022. This decrease was mainly a result of planned additional smelter offline days during the 3-month high electricity demand winter season, coinciding with elevated power prices.
Coal production, on the other hand, experienced a slight improvement, reaching 83.9 million tonnes compared to 81.1 million tonnes in the previous year.
Looking ahead, the Group estimates that production in coal, nickel, copper, cobalt, zinc, and ferrochrome will fall within the range of initial estimates, considering the aforementioned factors and trends in the respective commodities.
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