(Updates with reactions, detail)
By Louise Egan
SANTIAGO, Chile, Nov 29 (Reuters) - Chile's Codelco, the world's No. 1 copper producer, said on Friday it will cut foreign copper sales by 200,000 tonnes in 2003 -- but not production -- to reduce high world inventories that sparked this year's price decline.
The 200,000 tonnes will be kept as inventories in Chile, said Codelco, the first major producer since the mid-1980s to announce it will carry inventories of its own.
Codelco's leadership in trying to jump-start the sluggish copper market was seen as a positive signal but one that may not have much effect, analysts said.
"Codelco has decided to reduce by 200,000 tonnes the sales of copper from its own mines during the year 2003," Codelco's Chief Executive Officer Juan Villarzu told reporters, reading from a statement.
"Given that it is not going to modify its mining plans nor its production, these 200,000 tonnes will be maintained as inventories within Chile," he added.
The move was seen as a potential boost to the copper market, which has suffered a prolonged price slump that closely followed a drop in equities prices. Copper, an industrial metal, is used in housing construction and automobiles so it often follows the fortunes of Wall Street.
The state-owned giant was one of several miners to reduce copper output this year amid price decline and increasing stocks in metals exchanges around the world.
Despite a tepid market outlook for next year, it has repeatedly rejected the idea of continuing production cuts, which totaled 106,000 tonnes this year, into 2003. It plans to increase 2003 output by 100,000 tonnes to 1.645 million tonnes.
Villarzu said the new strategy is aimed strictly at reducing inventories, not boosting prices.
"We have no predictions of what impact it might have on prices. We are seeking stability in the market by way of the producers aiming to ensure there is neither an excess nor a shortage of inventories," Villarzu said.
Codelco plans to put the 200,000 tonnes back into world markets only when inventories have been reduced to 700,000 tonnes to 800,000 tonnes.
MARGINALLY POSITIVE
Daniel Roling, analyst with Merrill Lynch, said Codelco's move is marginally positive and warned that a strong economic recovery was needed to reach inventories of that level.
"It's a positive first step, but the problem is the market will know there's another 200,000 tonnes of overhang waiting to come," he told Reuters.
"You're basically withholding it from the trading community to use it as leverage," he said.
Copper stock in metals exchanges in London, New York and Shanghai currently total 1,370,000 tonnes, said Codelco.
Most analysts don't expect a significant drop in these inventories next year, an assessment shared by Codelco.
Some analysts have called for another round of copper production cutbacks to stimulate the market. Codelco, because it is state-owned, is under pressure not to cut jobs or production levels which might hurt the Chilean economy.
Mining accounts for about 10 percent of Chile's gross domestic product, which is set to expand only 2 percent this year compared with average annual growth rates of 7 percent during most of the 1990s. (Additional reporting by Ignacio Badal)