(Reuters) – Glencore said on Monday it will sell its stake in Koniambo Nickel SAS (KNS) in New Caledonia and that production at KNS's processing plant will be halted for six months while a new investor is sought for the loss-making business.

France has been negotiating to save New Caledonia's nickel industry and Paris said last week it had offered KNS state support worth around 200 million euros.

"Even with the French government's proposed assistance, high operating costs and current very weak nickel market conditions means KNS remains an unprofitable operation," Glencore said in a statement.

"Glencore will shortly initiate a process to identify a potential new industrial partner for KNS," it said.

The French government took note of Glencore's decision and would maintain its offer of state aid for KNS, a finance ministry official told reporters.

The government's position remained that an industrial player and not the state should invest in KNS and New Caledonia's other nickel processors, the official said, adding that Paris was not excluding at this stage the possibility of a Chinese investor.

Commodities miner and trader Glencore said last year it would only finance KNS, in which it has a 49% stake, until the end of February after pouring billions into the operation.

Glencore added in Monday's statement that it would fund KNS during the six-month period in which the company's plant will be placed in "care and maintenance".

The plant's furnaces will remain hot to maintain the viability of the site and all local KNS employees will be retained, it said.

The move to halt production should allow Glencore to avoid a negative impact on core earnings (EBITDA) of up to $400 million, with a full annual saving likely from 2025, Citi analysts said.

KNS is a joint venture between Glencore and Societe Miniere du Sud Pacifique SA (SMSP), the latter controlled by New Caledonia's northern province.

High costs and political tensions in New Caledonia, coupled with competition from Indonesia, have left the French territory's three processing plants on the verge of collapse.

The other two nickel processors are SLN, in which French miner Eramet has a majority stake, and Prony Resources, in which commodity merchant Trafigura has a minority stake.

The government aims to reach an agreement in the coming weeks on New Caledonia's nickel sector, the official said, declining to comment on terms discussed with SLN and Prony Resources.

(Reporting by Gus Trompiz in Paris, Clara Denina in London and Eva Mathews in Bengaluru; editing by Kirsten Donovan and Jason Neely)