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Aluminum output cuts seen but less so nickel and zinc

Reuters reported that weak demand and price declines for metals in a lacklustre global economy will play a role in pushing aluminum makers to continue cutting production as well as encourage nickel and zinc producers to make cutbacks, albeit on a smaller scale.

Aluminum producers including Alcoa and Norsk Hydro have cut global capacity by around 1.3 million tonnes after high power costs, combined with the sharp declines in prices, left around one third of the industry in the red.

Mr Stuart Burns of online metals journal MetalMiner said that "I would expect that the aluminum market may see this trend continuing, though not accelerating, for a period of time. But I don't see it spreading to other industrial metals in any significant way."

Rising power costs for the energy intensive metal played a key role in closures of high cost operations, some permanently. Power accounts for 30% to 50% of the cost of producing aluminum but is a smaller cost component for other metals.

The need for producer action in other metals also may be less acute than feared late last year, when worries grew that the euro zone crisis would spread, leading to a slump in metal demand.

Of the industrial metals, nickel and zinc are also vulnerable to cuts as they face sizeable surpluses, unlike copper, which is set for another year of tight supply. But their cutbacks may not turn out to be that significant.

Recently, Russia's Norilsk Nickel expected to reduce output this year to adapt to a small decline in demand. It said the reduction would be slight. Higher cost Chinese producers of nickel pig iron a lower grade of nickel used in stainless steel, will bear the brunt of any cuts in that metal, particularly if prices fall to around USD 17,000 per tonne.

But the pressure on them eased on Friday when the market rose above USD 20,000 per tonne for the first time since late October. These operations are very price responsive and can switch back to producing NPI very quickly when prices rise.

China is also eyed as the most likely source for curtailments in zinc because even the highest cost western miners can make money unless prices fall to USD 1,700 per tonne to USD 1,600 per tonne.

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