UPDATE 1-Korea Zinc sees sales falling by up to 38 pct

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SEOUL, Feb 5 (Reuters) - Korea Zinc (010130.KS), the world's second-largest zinc refiner, said on Thursday its 2009 sales could fall by as much as 38 percent this year, as it cut zinc output by 10 percent and metal prices remain under pressure.

The South Korean company faces a tougher year on prospects of lower demand and faltering metal processing fees which it receives from miners for turning concentrate into refined zinc.

The processing fee, which is called treatment charge (TC) and is a major earnings contributor for Korea Zinc, may fall by as much as 40 percent this year to around $180 a tonne from $300 last year, as miners reduce ore supplies and close mines to tighten zinc concentrate market amid weak demand.

Korea Zinc has yet to finalise annual processing fee contracts with major miners such as Teck Cominco (TCKb.TO) to set the industry's benchmark.

"Negotiations are in full swing and we are aware that miners are asking for headline treatment charges (TCs) of around $160-$170 a tonne and smelters are pushing for headline TCs above $200," Macquarie said in a recent report.

"There is no doubt that together with a lower headline treatment charge, smelters are expected to have to deal with much lower revenues from bonus metal and physical premiums in 2009 and 2010."

Korea Zinc declined to comment on the negotiations, adding that the overall consensus was for a drop in the charges.

The company said it would invest 200 billion won this year and forecasts 2009 sales at between 1.5 trillion won ($1.1 billion) and 1.77 trillion won, down as much as 38 percent from 2.45 trillion won a year ago.

It is aiming for zinc sales of 410,000 tonnes this year and assumes the metal will trade at between $1,000 and $1,200 a tonne.

Prices of zinc MZN3, which is used mainly in galvanising steel to prevent rust, tumbled 50 percent last year to $1,208 a tonne and has fallen further this year to $1,190, pressured by a deepening global economic slowdown.

Prices may fall 35 percent this year to $1,213 a tonne on average versus last year's average of $1,880, according to a Reuters poll last month. [ID:nLR439617]

Korea Zinc controls 48 percent of the South Korean zinc market, followed by its biggest shareholder Young Poong (000670.KS), which has a 31 percent of the domestic zinc market.

In 2008, Korea Zinc reported a 4.5 percent fall in sales to 2.45 trillion won and a 33 percent tumble in net profit to 282.7 billion won.

The global zinc market was in surplus by 134,000 tonnes in the first 11 months of 2008, according to the International Lead and Zinc Study Group. (Reporting by Miyoung Kim; Editing by Jonathan Hopfner)