* High stockpiles, weak demand hammering prices
* Smelter exec sees little respite from cut pledge
* China’s top smelters plan to cut output by 10 pct
By Tom Daly and Josephine Mason
BEIJING, June 29 (Reuters) - The plan by China’s top zinc smelters to cut output may not be enough to bring sustained long-term relief to the beleaguered sector as galvanising demand from the steel industry weakens and inventories swell, four industry sources said on Friday.
On Thursday, major smelters in the world’s top zinc producer proposed reducing output by 10 percent to shore up prices, which are on track for their worst quarterly performance since the third quarter of 2015.
The decision highlights the growing financial pain in the sector, but the move only gave a short-lived boost to prices for the metal used to galvanise steel, which protects it from rusting. Market participants are not convinced Chinese producers will carry out the cuts.
Shanghai zince futures rose 1.5 percent on the news on Thursday, but managed to add only another 0.3 percent on Friday, while London Metal Exchange (LME) zinc shed more than 1 percent by 0954 GMT.
Ballooning stockpiles of refined metal and a poor order books from galvaniser explains the lukewarm market reaction.
An executive at a major Chinese smelter reckons the impact of the cuts will be minimal.
“Galvanised pipe firms ... are currently subject to strict environmental protection policies,” he said. He declined to be named as he is unauthorised to speak to the media. “Production suspensions and reductions are severe.”
The coordinated move comes after Chinese zinc production dropped by 5 percent in May from a month earlier, although it was up 1.6 percent year-on-year in the first five months of 2018, data from the National Bureau of Statistics shows.
Cutting 10 percent of output would equate to about 400,000 tonnes on an annualised basis, Helen Lau, an analyst at Argonaut Securities, wrote in a note on Friday.
This would “greatly mitigate the risks of oversupply in our view if it is followed through” for the rest of the year and should help stabilise prices, she added.
But demand for galvanising is particularly weak, she cautioned. China’s galvanised steel production decreased by 3.3 percent in May, whereas overall steel production grew by 11 percent during the period, she said.
A Shanghai-based trader at a foreign merchant said he is struggling to sell zinc at the moment.
“(There) may be some impact on the premium, but I do not think it has a big impact on the zinc price itself,” he said of the potential production cut.
This week, premiums for zinc ingots delivered to Shanghai dropped to a one-year low of between $110 and $120 per tonne, including the cost of insurance and freight, according to Metal Bulletin.
The LME zinc inventory MZNSTX-TOTAL is just under 250,000 tonnes, almost double the levels of early March, while Shanghai Futures Exchange stocks ZN-STX-SGH have jumped almost a quarter this month.
“Zinc ingot stocks on the market are still relatively high and difficult to digest in a short time,” said the smelter executive.
Reporting by Josephine Mason and Tom Daly; Editing by Christian Schmollinger