Zinc market showing signs of recovery - Nyrstar

Demand is being driven from China, Europe and the US

BRUSSELS (Reuters) - 

Nyrstar (NYR.BR), the world's biggest zinc producer, said on Wednesday the zinc market was showing recovery signs driven by higher demand in the Chinese, European and U.S. steel industry, and was on track to cut costs.

Nyrstar said its zinc market metal production rose 6% in the third quarter to 207,000 tonnes from the previous three months, but was down 26% year on year for the first nine months of the year.

Led by China, the world economy was emerging from its deepest downturn in decades as a result of fiscal and monetary policies and as the destocking that occurred in late 2008 and first half of 2009 came to an end, Nyrstar said in a statement.

Zinc is mainly used to galvanise steel to protect against corrosion, and the recovery in the steel industry had been important for zinc demand, with galvanised steel accounting for over half of total zinc consumption, according to the International Lead Zinc Study Group.

World crude steel output was 0.5% higher month-on-month in September 2009 after a gain of 2.5% in August, according to data from the World Steel Association.

The company had seen some improvement in demand for its galvanising and speciality alloys, but premiums remained under pressure.

Nyrstar shares opened higher but by 1140 GMT, the stock was down 3.7% at 8 euros, in line with a 4.2% drop for the DJ Stoxx European basic resources index .SXPP.

"We believe the cost savings are sustainable in 2010 and will enable Nyrstar to fully benefit from the higher zinc price," Royal Bank of Scotland analyst Pieter Zwinkels said in a note to clients.

Zinc futures MZN3 are trading at around $2,300 per tonne, against about $1,500 per tonne in mid-July and around $1,200 per tonne a year ago.

The group benefited from the rally in zinc prices in the third quarter, but it said sulphuric acid prices remained under pressure. Sulphuric acid is a by-product of the zinc-making process, which Nyrstar also sells.

"Whilst in the short term markets are likely to remain volatile, we continue to believe that the outlook for zinc and other resources in the medium to long term is positive and will provide further opportunities for growth," Chief Executive Roland Junck said.

The group was on track to cut annual costs by 75 million euros ($112 million) by the end of 2010, it said.

Nyrstar said it would change its dividend policy from a fixed payout ratio to a recommendation by the board. It added that the new dividend policy would maintain adequate cash flows to carry out a new strategy to expand into mining to complement its smelting operations, which it outlined in June. ($1=.6718 euro) (Reporting by Antonia van de Velde, editing by Dale Hudson and Jon Loades-Carter)

© Thomson Reuters 2009 All rights reserved

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