Glencore’s Command of the Zinc Trade – by Tim Puko (Wall Street Journal – January 3, 2017)

Just one global trading house may determine whether 2016’s best-performing commodity keeps rallying in the new year.

Glencore PLC has become the big focus of zinc traders and analysts by sitting on 500,000 tons of annual production it shut as the commodity markets busted back in 2015. Now zinc is leading the broad commodity rebound — up 60% and the best performer in the Bloomberg Commodity Index in 2016 – making analysts question a restart from Glencore.

Glencore’s shut-in supply accounts for about 4% of world production and may make up the entire shortfall in the zinc market these days. Analysts put zinc’s supply shortage less than 400,000 tons.

“Glencore’s the crux of the market this year really,” said David Wilson, director of metals research and strategy at Citigroup in London. “They might not bring it back quickly – and, really, they might not bring it back at all this year.”
A Glencore spokesman declined comment.

The Swiss commodities giant both mines and trades zinc and other minerals, a business model designed to benefit from insider knowledge about supply and demand to boost profits from trading, common in commodity markets. In theory the trading business should be able to make money at both high and low prices, but high prices lead to larger margins, higher premiums charged on trading and shipping minerals, and higher prices from selling zinc traders have stocked away in storage.

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