ENRC to review output cutbacks in Q2

LONDON (Reuters) - Kazakh mining group Eurasian Natural Resources Corp Plc (ENRC) (ENRC.L) will review its heavy production cuts in the second quarter, but it's still too early to draw conclusions from a few positive economic signs, Head of Marketing Jim Cochrane said on Monday. "We don't see ... an improvement in the broader economy in the first half of the year, but the cutbacks will depend on the destocking, what's happening in Russia, what the steel situation is, so we haven't made a final decision," Cochrane told the Reuters Global Mining and Steel Summit in London. "The cutbacks are running through to the end of the first quarter ... we'll have a look at what sales are in the second quarter and make a decision," said Cochrane, who is also in charge of business development for the group.

A sharp fall in metals prices spurred the group to cut ferrochrome output late last year by about 35 percent and iron ore production by 50 percent.

ENRC, which is due to release annual results on March 25, is one of the world's biggest producers of ferrochrome and the sixth-biggest exporter of iron ore by volume.

Cochrane said some areas and sectors were doing slightly better, but it was hard to get much visibility about the overall economic picture for the second quarter.

"You can read about the iron ore, there was stronger buying in the first quarter than had been anticipated in China ... but I don't think at this point in time we can be clear to say that the situation is going to be dramatically better than it was in the first quarter."

STABLE FERROCHROME PRICES?

In the ferrochrome sector, prices may level off after sharp falls because many firms are loss-making at current levels.

"It's quite clear there's a number of producers are not making money at this point in time, which would suggest that that would offer some price stability."

Cochrane declined to make a forecast for the second-quarter settlement in ferrochrome contract prices, but said in the past, prices have made dramatic falls then stabilized.

"If you look at history, prices go down faster than they go up. It generally doesn't take very long for them to go down to a level where they're not able to go down much further."

The first-quarter settlement saw prices tumble 57 percent to 79 cents per lb.

Cochrane said the economic downturn has pushed down prices of many inputs, which will help cut costs going forward.

"Last year ... costs were under pressure, but today coal prices are coming off and I think inflationary pressures are receding, so we would expect costs to improve."

Cochrane said ENRC was being offered possible acquisition opportunities since it was in a very good position with a very strong balance sheet. At the end of the first half last year, ENRC had $2.65 billion in liquid funds available.

"I think we are in a good position and people know it ... we're probably having to work less hard at seeing what's out there," he said.

"We're looking to add value to the company so we're not in a hurry, we'll be very careful about how we spend the money."

Rival Kazakh mining group Kazakhmys (KAZ.L) is the company's biggest shareholder, with a 26 percent stake.

ENRC shares, which have shed about 75 percent since peaking last May, closed down 2.3 percent at 367.75 pence, compared with 1.2 percent fall in the FTSE-350 mining index .FTNMX1770.

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Eric Onstad; Editing by Andrew Macdonald)