Miners proving stubborn on output cuts despite price slide – by Eric Onstad (Reuters U.K. – October 21, 2015)


LONDON, Oct 21 (Reuters) – Base metal mines dipping into the red are proving unexpectedly resilient against output cuts, which is likely to prolong and deepen already weak prices.

Some mines are resisting cuts in production by hedging when prices pop higher, others are absorbing losses because shutdown costs are even steeper, while fear of painful job losses is keeping still other loss-making operations alive.

The London Metal Exchange index of its six main base metals has shed a fifth of its value over the past 12 months.

In some metals, such as nickel, about half of capacity is loss making after the rout on commodity markets, largely due to fears about slower growth in top metals consumer China.

“Given that so many nickel mines are out-of-the-money, we should reasonably expect to see a large supply-side response,” said analyst Joel Crane at Morgan Stanley.

“Instead, nickel miners are holding fast.”

While a clutch of production shutdowns have resulted in headlines and prompted price rallies, most base metals are expected to remain in a supply/demand surplus this year and next, Reuters polls showed last week.

Commodity trader and miner Glencore has been the most prominent among the major mining groups to cut output, including of zinc, which spurred a strong rally.

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