"GSP (Generalised System of Preference) imports next year are likely to amount to some 50,000 tonnes," said a trader at a leading trading house. "There're people who want to continue using imported metal."

The GSP scheme grants a tariff exemption to designated developing country imports submitted for customs clearance at the beginning of the fiscal year on April 1.

Traders said some trading houses planned to import low-priced Chinese metal under the GSP scheme as the sharp downturn in the Japanese economy added to the pressure on end-users to trim production costs.

Such trading houses hope to benefit from a likely fall in GSP imports next year from 66,572 tonnes this year as only a few players are willing to shoulder the risk of importing zinc amid the worst recession in Japansince World War Two, they said.

"With things turning so bad, we have no intention of importing zinc under the GSP scheme next year. It's too risky," said another trader. "It's not clear if you can find a buyer."

Some traders also questioned whether it was worth making use of the GSP scheme as the import tariff on zinc will be cut to 4,300 yen per tonne from January from 5,040 yen this year.

Traders said, however, premiums for Chinese special high grade (SHG) zinc have edged up by $5-10 in the last few weeks to $25-30 per tonne FOB (free on board) China basis, reflecting some buying interest from Japanese traders.

It was yet uncertain whether Japanese zinc smelters would buy the metal from China under the GSP scheme as they were struggling to reduce their inventories amid sharp falls in domestic demand. "I wonder what the smelters will do. There's no real need to buy it (from China) when they're trying to cut inventories through exports," said a third trader. "We fear domestic demand will fall furthertowards 600,000 tonnes next year."

Traders said while it had been quiet so far this year, in a normal year Japanese smelters sometimes strike GSP deals with Chinese suppliers as early as in August because they want to set the pace for imports. With 1998 Japanese zinc demand set to fall towards 630,000 tonnes from 740,000 tonnes last year, Japanese smelters have been busy shipping their surplus metal abroad, though the latest fall in the dollar against the yen has put a brake on such moves, traders said.

Official data last week showed Japan's September zinc exports totalled 6,822 tonnes, down from 8,882 tonnes in August but well above the monthly average of 3,371 tonnes so far this year.

Of the September total, SHG zinc accounted for 5,195 tonnes, with the lion's share of 2,877 tonnes of SHG metal heading for Taiwan. Another 1,513 tonnes went to Singapore, possibly to London Metal Exchange (LME) warehouses, traders said.

"I've heard exports have lost momentum as the dollar has come down this much,"said the first trader at a Japanese house, referring to the dollar, which traded above 115 yen on Wednesday, compared with around 140 in the six months to September 31.

The second trader agreed, saying: "Everybody's worried about the strong yen (against the dollar), though smelters earned a lot during the first half when the yen was cheap."

In a move that highlighted such worries over the impact of the dollar's fluctuations, Daiwa Institute of Research Ltd said on Wednesday it had downgraded shares in Mitsui Mining & Smelting Co Ltd, Japan's largest zinc smelter, to "B" from its previous "A".