China was the worlds largest producer of refined zinc last year with a total output of 1.41 million tonnes.

Chinas zinc exports have fallen sharply as the Asian Financial crisis battered its major export markets.

In the first half of the year, refined zinc exports tumbled 37.8 per cent to 154,346 tonnes, according Chinese customs data.

But zinc production rose 5.56 per cent in the first five months of the year over a year ago to 567,207 tonnes.

"Domestic demand was probably up slightly in the first half of the year, but not nearly enough to absorb the drop in exports," an industry analyst said.

Last year, 70 per cent of Chinas zinc output was sold overseas, he estimated.

Confusion over maintenance shutdowns at some smelters had given rise to speculation that Chinese producers might scale back zinc production as the Asian Financial crisis cut deeply intodemand for the metal.

Huludao Zinc Smelter, Chinas largest zinc producer with a capacity of 330,000 tonnes per year, began the annual maintenance of its 130,000-tonne electrolytic system in mid-June.

As zinc prices wobbled on the London Metal Exchange, there was talk in the markets of extended shutdowns in Huludao and possibly at other smelters, traders said.

"The new system was shut down for maintenance for a non-specified period," a trader said. "Now that the LME prices have stabilised somewhat, the plant may resume full production."

Zinc prices on the LME crawled from the lows from late June of $1,020 to a high of $1,125 last week. Zinc closed at $1,087 at the LME on Friday.

Traders also noted that while Huludaos new system was undergoing maintenance, the old 200,000-tonne distilling system was still running at the normal capacity utilisation.

The Huludao Zinc Company declined comment on its production plans.

A trader said a new rolling mill in Dalian in northeast China completed late lastyear was supposed to need 100,000 tonnes from Huludao to make zinc sheets.

Moreover, Chinese producers were worried about losing future market share to other start-up zinc smelters in Asia, such as South Koreas big zinc smelter, which planned to boost capacity by 50,000 tonnes in 1998 to 350,000 tonnes and ultimately to 400,000 tonnes, he said.

"Domestic producers liked to say that they were cutting back," the trader said."But not many people took them seriously."

The second largest zinc smelter at Zhuzhou in the southern province of Hunan was keeping to its output schedule regardless of the depressed prices.

"We are losing money," he told Reuters by telephone. "Ourcost of production is over 9,000 yuan ($1,084) per tonne."

Zhuzhou has been shipping 10,000 tonnes per month to Shanghai for export, he said.

Trader said a lot of the Chinese zinc exports ended up in LME warehouses in Singapore.