Anibal Contreras clears slag at the Altonorte metallurgical facility, north Chile

Anibal Contreras clears slag at the Altonorte copper smelter in north Chile

Thanks Glencore,

You just promised to cut more production than there is current LME inventory in the copper market. 400,000 tonnes of production is a huge cut that should push the copper market into deficit for the next 18 months.

This is going to be great for the copper market and copper-producing countries like the Congo and Chile as it will tighten supply and get the price of copper back to rational levels. It will help everyone – including the companies you are angry with for not making a supply-side response to this market downturn – talk about taking the bull by the horns and reacting to market conditions.

Coupling your decision with the Chinese trade data shows that China is the real winner of the current commodity price wars – they are still importing like crazy, but not paying as much. For China, it is like shopping at Nordstrom but paying Walmart prices for metals.

So it’s a showdown: Glencore is in one corner, speculators are in the other corner, and there are also traders who are betting that copper will never recover. My bet is on Glencore, BHP, and others who have been rational and supply the market with metal because they can limit supply. Demand is out of the control of the traders and speculators.

The thing about the copper market is that almost everyone in the business is lacking quality reserves, there is not an unlimited supply of copper like there is iron ore, or salt. The decision to cut production is rational as they can add production back later at higher prices. High grading mines to sell $5,000 per tonne metal seems stupid when metal is limited in the ground.

Also, it is highly unlikely that some new project is going to come in and take the copper market share away. The cupboard of new projects is pretty bare, and capital for new projects is even worse. Nothing new will be financed for 2-3 years or built for 4-5 years.

Glencore, I am glad you are fighting on the suppliers’ side. Going against you would be nightmarish.

Related: Glencore investors force Glasenberg to prepare for doomsday, Bloomberg