Regional metals traders said the downturn will put even more pressure on physical premiums, already under pressure from waning demand.

The downturn, triggered by waves of selling by investment funds, silenced market bulls who had predicted the metals price complex had bottomed out.

Benchmark three-month London Metal Exchange copper and aluminium futures were the big losers, dropping to fresh 11-year and five year lows respectively. Zinc, nickel, lead and tin were also down.

Australia's Comalco Ltd last week said it had diverted 100,000 tonnes of metal away from Asia to the US and Europe and will continue the practice, to capture higher premiums over the LME price.

Contract premiums in Japan of around $38 a tonne in the first quarter for Australian aluminium cif Japan may be rolled over or only slightly increased for the second quarter during current negotiations, sources said.

Other Australian producers hope to do the same, particularly for copper and zinc.

"So it seems the worst is not over," said a Chinese trader in physical metal.

Ballooning metals stocks in the Singapore warehouse run by the LME and tens of thousands of tonnes of copper, aluminium and zinc and other metals believed squirreled away in hidden caches, also suggest more pain for the sector.

Reaction to the latest rout on the floor of the LME among traders in Taiwan, where zinc is imported to feed a growing domestic galvanised steelmaking industry, was muted.

Zinc futures fell $33 to $1,015 a tonne last week.

A rise in Taiwan's galvanised steel production is expected to boost Taiwan's 1999 zinc imports to 245,000 tonnes from 230,000 tonnes in 1998, according to industry estimates. "Surely the zinc price fall will help reduce purchase costs for zinc," said a senior executive for Marubeni Corp's steel section in Taipei. But in such conditions buyers usually are even more cautious as they fear more price falls may be ahead," the executive added. LME broker Rudolf Wolff agrees.

In its latest metals market report it says even if zinc stages a recovery, it will offer little more than selling opportunities for profit takers, which could hammer prices lower.

In China's lead market, depressed prices were unlikely to have an immediate impact on domestic producers, which means metal will continue to flow from an assortment of large and small operators, local traders predicted.

"A number of producers have already committed with end users for 1999 production," one said.

Moreover, for smaller producers, although the price is low, it would cost more to restart production than hold stock over.

"There is no reason for Chinese producers to cut back production," he said.

Meanwhile, lead was attracting some inquiries from Taiwan but very little from Japan.

In Japan, market fundamentals were gradually improving for nickel, with suppliers moving to reduce output while demand in the electronics sector was showing signs of recovery, industry observers noted. But persistent weakness in demand from Japanese stainless steelmakers and a threat of declining European demand this year clouds the outlook, the trader added.

In South Korea, traders believe that in the absence of major production cutbacks, there was little upside in copper.

"Copper prices may fall to $1,300 a tonne, if here is no action to help ease oversupply in the global market," predicted a trader with LG Cable and Machinery Ltd.

Three-month copper prices slipped to a 12-year low of $1,378 a tonne on Monday before closing at $1,381.