* LME zinc stocks surge 43 pct since Aug. 7
* Glencore says liquidating over $1.5 bln of inventories
* Zinc flows into LME warehouses in New Orleans
* Graphic on zinc stocks/prices: link.reuters.com/dyp65w
* Graphic on metals prices: link.reuters.com/cag37s
By Eric Onstad
LONDON, Sept 18 Substantial amounts of base
metal zinc could be released onto world markets, weighing
further on fast falling prices, as major producer Glencore
implements a plan to liquidate some of its commodity
inventories to help pay off debt.
The overhang of inventories in London Metal Exchange (LME)
storage facilities, which has surged more than 40 percent since
early August, has wrong-footed investors who had earlier this
year targeted zinc as a top bet in metals due to closures of big
mines that would create shortages.
Zinc, mainly used to galvanize steel to protect against rust
in autos and construction, has slumped from being one of the
best performing industrial metals earlier in the year to one of
the worst due to the inventory change.
"It's been a big shock to the market, this massive flood
into the LME warehouses," said Stephen Briggs, metals strategist
at BNP Paribas.
But mining and trading company Glencore may add further to a
plentiful supply situation after announcing a raft of measures
to slash its net debt of $30 billion.
At interim results last month, Glencore said it was cutting
"readily marketable inventories" by $1.5 billion. Last week it
said it was further reducing working capital by an additional
$1.5 billion, partly from liquidating more inventories.
Swiss-based Glencore gave no details about which inventories
it was selling off and a spokesman declined to comment.
Glencore had inventories worth $23.6 billion at the end of
June, but financial statements did not provide a breakdown of
inventories by commodity. Glencore has operations ranging from
metals to coal to grains.
Glencore is one of the world's biggest producers of both
zinc concentrate, or partially processed ore, and the refined
metal. It increased its overall output of zinc by 12 percent in
the first half of the year to 730,300 tonnes.
"I can't confirm it (Glencore selling metal stocks) ... but
it is much easier to liquidate LME (refined) metals than
concentrates," Briggs said.
INFLOW AT NEW ORLEANS
LME zinc inventories MZNSTX-TOTAL have surged 43 percent
to 608,885 tonnes since August 7, with the bulk of metal
arriving at warehouses in New Orleans.
Glencore's warehousing unit, Pacorini Metals, dominates
activity in New Orleans, owning nearly two-thirds of the 42
depots in the city.
Benchmark zinc on the London Metal Exchange jumped
to an eight-month peak of $2,404.50 a tonne in May, but has
since slid nearly 30 percent to $1,740.
Analysts said some of the material appearing in LME sheds
was probably being shifted from non-LME facilities, but some was
also likely to be the result of Glencore selling off stocks.
Glencore, whose biggest refined zinc output is in Europe,
would be keen to send material to the United States to keep
premiums firm in its key European market, an industry source
"They may want to move the inventory off their balance sheet
and also provide a bit of a prop, or a floor, to European
premiums," said the source, who declined to be named.
Industrial consumers pay a premium or surcharge over the LME
cash price for immediate delivery of metals.
The heavy flow of inventories is dampening the impact of the
closure of big mines this year, which had been expected to
tighten the supply balance and create a deficit.
This year, China-owned MMG is closing its Century
Mine in Australia while Vedanta Resources is shutting
down its Lisheen Mine in Ireland.
"It's (inventory rises) creating negative sentiment around
zinc," said analyst Vivienne Lloyd at Macquarie in London.
"The market remains in a technical deficit for refined
metals, but the stocks should be able to easily feed any actual
shortfall in the marketplace."
(Additinal reporting by Tom Bergin; Editing by Veronica Brown
and Gareth Jones)