Kazakh miners cut output as crisis hits demand

ASTANA/MOSCOW, Oct 28 (Reuters) - Kazakhstan's leading miners, ENRC and Kazakhmys, are scaling back production as the global financial crisis hits demand for their metals, company and government officials said on Tuesday. Eurasian Natural Resources Corp said it would cut iron ore output in the fourth quarter, while Kazakhmys -- the world's 10th-largest copper producer -- has halted three mines and its Zhezkazgan smelter. Zinc and steel firms have also cut output. "The sharp decline in non-ferrous metals prices is forcing Kazakhmys to halt some production units," Kazakh Industry and Trade Minister Vladimir Shkolnik told a government meeting. "Output at all ENRC subsidiaries may be reduced," the minister said. The government holds minority stakes in both ENRC and Kazakhmys, which are important employers in the regions of the ex-Soviet state where they operate. Metal prices have tumbled from record peaks as the global financial crisis eats into demand. Zinc, aluminium and nickel have dropped below the cost of production to threaten miners with their first potential losses in around five years. The price of copper, used in everything from telephone wires to computer chips, has more than halved from record peaks in July to trade at just over $4,000 a tonne Aluminium has fallen 40 percent in roughly the same period to trade around $2,070. Shkolnik said zinc producer Kazzinc, controlled by mining and trading group Glencore, could also cut output or halt operations altogether if zinc prices continued to drop. Kazzinc's annual capacity is 293,000 tonnes of zinc metal. Zinc has fallen 60 percent in value since March to trade at around $1,160 a tonne as a surplus of the metal, which prevents steel from rusting, looms. The Kazakh subsidiary of global steel giant ArcelorMittal has also more than halved daily output in October due to lower demand, Shkolnik said. ArcelorMittal Temirtau said this month it would reduce sales by 30 percent year-on-year in 2008 due to shrinking demand. It produced 4.1 million tonnes of crude steel in 2007. PRODUCTION CUTS Eduard Ogai, head of Kazakh operations at Kazakhmys, told reporters his company was not going to reduce full-year output below the 2007 level despite the output cuts. Ogai said Kazakhmys had halted operations at three copper mines and stopped the Zhezkazgan copper smelter for maintenance. Kazakhmys produced 341,000 tonnes of copper cathode in 2007 from its own ore. A spokesman for ENRC, which produces ferro-chrome, aluminium and iron ore, said the company had cut fourth-quarter iron ore output and that full-year production would be "slightly below" that of 2007. He did not give exact figures. ENRC's iron unit, the Sokolov-Sarbai Mining and Production Union, is a key supplier of ore to ArcelorMittal's steel plant in Temirtau and Russian steel maker Magnitogorsk Iron and Steel Works, which has also cut October production. ENRC's iron division mined about 40.2 million tonnes in 2007. "We are expecting to cut ferro-alloy production to be broadly in line with 2007 levels, excluding Serov," he said, referring to the Russian ferro-chrome producer in which ENRC acquired a majority stake earlier this year. "We're continually reassessing our production plans for our businesses in light of the weakening global economic situation and its impact on demand from our steel and stainless steel customers," the ENRC spokesman said by telephone from London. Executives from Kazakhmys, ENRC and ArcelorMittal attended Tuesday's government meeting to discuss measures to prevent potential losses while avoiding lay-offs. Shkolnik, speaking at the meeting, suggested helping the companies by freezing railway tariffs, dropping an aluminium export duty which the government planned to introduce next year and relaxing transfer pricing regulations. After the meeting, Kazakhmys, ArcelorMittal Temirtau and the Sokolov-Sarbai Mining and Production Union signed a memorandum pledging they would not sack workers despite production cuts.