SEOUL, April 3 (Reuters) - Korea Zinc, the

world's biggest producer of zinc, will prioritise domestic sales

over exports in the event of any steep drop in South Korean

smelting production, a senior executive told Reuters.

The question of just how much zinc South Korea will be able

to export has become a focal interest for zinc traders after the

country's No. 2 producer Young Poong said last month

it had cut production at its 400,000 metric ton-per-year Seokpo

zinc smelter by a fifth.

Sources at zinc raw material suppliers have since said they

expect further production cuts from Young Poong, which has long

been loss-making and is grappling with low prices and increases

in electricity costs.

Young Poong said on Wednesday that it has no such plans. It

has not said how long it expects production to remain at current

levels.

South Korean demand for zinc - mostly used to treat steel -

is around 470,000 tons per year - of which Korea Zinc and Young

Poong supply around 400,000 tons.

Korea Zinc can easily satisfy South Korean demand, D.W.

Kang, executive vice president at the firm's raw materials

division told Reuters.

"The priority for us is to sell in South Korea. The rest, we

export. Among exports, we prioritise higher premiums and we also

sell some zinc in the spot market," he said.

Korea Zinc plans to produce 650,000 tons in 2024, similar to

last year.

Last year, South Korea exported 609,145 tons of zinc ingots

according to trade data, accounting for about 4.4% of the global

zinc market. Of that, Korea Zinc exported 454,388 tons, the

company said.

Amid weak demand due to a slowdown in global construction

activity, zinc prices have lost about 20% from a year

ago to trade around $2,479 a ton, resulting in the suspension of

multiple zinc mines and smelters over the past year.

"If there's a problem with production at one place, the

market will be short. That might drive up the LME price and

premiums, but won't pose difficulties for our sales," Kang said.

Underscoring the weakness in zinc prices, sources said

Canadian miner Teck Resources ( TECK ) agreed to pay Korea

Zinc $165 per metric ton, a three-year low, to turn its zinc

concentrate into refined metal.

The thinning of margins is not helping with the perception

that "when it comes to zinc, growth has almost reached its

limit," Kang said.

But he said Korea Zinc was better equipped to weather a

downturn in the market than rivals as it handles a wide variety

of metals.

"What Korea Zinc has are polymetallic smelters that produce

various metals like zinc, nickel and copper at the same site; we

also have the flexibility to handle a wide variety of raw

material qualities and mixes," he added.

Korea Zinc is also building up its metal recycling business

and said on Monday it has acquired U.S.-based scrap metal trader

Kataman Metals.

Korea Zinc and Young Poong, once sister companies founded by

business partners, have been at loggerheads over legal and

shareholder issues.

Korea Zinc currently bulk buys zinc concentrate for both its

own smelters and Young Poong's Seokpo facility, and a company

called Sorin Corp exports both companies' products. But the two

companies are likely to separate their sales and raw material

procurement in the future, Kang said.

Young Poong said nothing has been decided.