LONDON (AP) — Shares in commodities group Glencore rose strongly Friday after the company said it is slashing its zinc production by a third and cutting jobs in response to a sharp fall in the price of the metal.
The move — which will involve a cut in annual zinc production by 500,000 tons in Australia, South America and Kazakhstan — is the latest response by the Switzerland-based company to the slide in commodity prices that has raised concerns over Glencore's underlying business model.
Investors responded positively and Glencore shares closed up 7 percent in London at 129 pence.
Glencore's announcement also helped zinc prices rise, as global production of the metal will fall by around 4 percent. Other miners rallied too, such as Rio Tinto, which rose around 3 percent.
And on the London Metal Exchange, zinc, which is used widely to rustproof steel or iron, rose by around 10 percent. Others metals rose in its slipstream stoking some market talk that battered commodity prices may enjoy a rebound over the coming weeks.
"One side of the commodity story has been abundantly clear, with demand falling sharply as Chinese economic activity slows," said Joshua Mahony, market analyst at IG. "Today's announcement begins to bring the supply side into stark relief and could provide further interest in beleaguered commodity prices."
Despite Friday's rise, Glencore's stock is way down from when it floated in 2011 at 530 pence. The selling pressure has accentuated in recent weeks as investors fretted over the impact of falling commodity prices on earnings and the company's ability to meet its debt repayments amid low commodity prices. On one day alone last month, Glencore's share price plunged by around a third.
Glencore said its operations at Lady Loretta in Australia and Iscaycruz in Peru will be suspended. Mining operations at George Fisher and McArthur River in Australia and at various locations in Kazakhstan will reduce production.
"The main reason for the reduction is to preserve the value of Glencore's reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources," it said. "These changes, although temporary, will unfortunately affect employees at our operations."
Glencore, which was founded in 1974 by the late commodities trader Marc Rich, floated in 2011 in a listing that valued the company at a little less than 40 billion pounds ($60 billion) and made billionaires of several of the company's executives, including CEO Ivan Glasenberg.
Friday's move by the company follows a package of measures last month — from asset sales to suspending dividends and raising cash from new and existing shareholders — that it hopes will reduce debt by $10 billion. Even after that, the company's debt will be around $20 billion.