UPDATE 1-Smaller China zinc smelters agree 10 pct output cutSat...

UPDATE 1-Smaller China zinc smelters agree 10 pct output cut
Sat Jul 12, 2008 10:43am EDT

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(Updates with details about reserves proposal, quotes)

By Alfred Cang

SHANGHAI, July 12 (Reuters) - China's small- and medium-sized zinc smelters, accounting for about 30-40 percent of output in the world's top producer, agreed on Saturday to cut production immediately by 10 percent to lift local prices, two industry sources told Reuters.

The smelters, including Yuguang Gold and Lead (600531.SS: Quote, Profile, Research, Stock Buzz) and Hongda (600331.SS: Quote, Profile, Research, Stock Buzz), also called on the government to establish a strategic reserve of the metal in order to help stabilise prices, as it does for other commodities like copper and wheat.

While the sources cited prices as the main motive for the curbs, the deal comes just two days after China's biggest aluminium smelters agreed to cut output by 5-10 percent to ease escallating electricity shortages that threaten to push the country into its worst summer power crisis since 2004.

"The smelters agreed to...try their best to support domestic prices," said one source with a smelter who attended the Saturday meeting in Shanghai, the third in a series of meetings aimed at reviving prices that have fallen by a third in four months, plunging many smelters into the red.

Speculation of production curbs helped drive Shanghai zinc futures prices up by their daily maximum 4 percent on Friday.

Third-month prices SZNc3 had touched 14,890 yuan a tonne on Wednesday, the lowest since zinc was introduced on the Shanghai Futures Exchange in March 2007 and below the 15,000 to 16,000 yuan that analysts say is smelters' break-even point.

The country's top zinc producers, like Zhouzhou (2626.HK: Quote, Profile, Research, Stock Buzz) and Shoguan, did not take part in the meeting as had been expected, the sources added. Continued...