May 16, 2019 / 12:15 PM / 11 days ago

METALS-China supply concerns help aluminium to two-week high

* Aluminium resistance seen at $1,870

* Aluminium cancelled warrants and large holding in focus

* GRAPHIC-2019 asset returns: tmsnrt.rs/2jvdmXl (Adds official prices, updates lead)

By Pratima Desai

LONDON, May 16 (Reuters) - Aluminium prices climbed to two-week highs on Thursday after news of production shutdowns at one of the country’s biggest smelters fuelled worries about supplies from top producer China.

Benchmark aluminium on the London Metal Exchange (LME) ended up 0.3 percent at $1,860 a tonne. Earlier the metal used widely in transport and construction touched $1,871, its highest since May 3.

“Aluminium prices have been lifted by output cuts, due to regulatory, environmental reasons,” said Julius Baer analyst Carsten Menke, adding that the impact on the global market remained to be seen.

“But this is something that has made aluminium bears aware that prices are not a one-way street

SHUTDOWN: Xinfa Group, one of China’s biggest aluminium smelters, is closing all production lines on its 2.8 million tonnes per year alumina refinery in Shanxi for an unspecified period amid an environmental dispute, causing alumina prices to spike.

Alumina can account for up to a third of aluminium production costs. Prices of alumina have risen more than 10 percent to more than 3,000 yuan ($436) a tonne over the past four weeks. SMM-ALM-NCHN

Jackie Wang, analyst at metals consultancy CRU in China, expects alumina prices to remain high, providing support to aluminium prices.

SHANGHAI: Aluminium on the Shanghai Futures Exchange (ShFE) touched a seven-month high of 14,395 yuan a tonne in early Asian trade.

China is the world’s largest aluminium consumer. It is also the world’s largest producer, accounting for 57 percent of global output estimated at more than 64 million tonnes in 2018.

Aluminium stocks in warehouses monitored by ShFE, at about 600,000 tonnes, have fallen nearly 40 percent over the past year.

TECHNICALS: Support for LME aluminium kicks in around the 21-day moving average of $1,835.

Resistance is at $1,870, where the 50-day and 100-day moving averages are converging.

“Funds have been covering their short positions, some are reversing into longs,” one aluminium trader said, adding that it could take several attempts to break above $1,870.

WARRANTS: A large holding of aluminium warrants, between 30 and 39 percent, is fuelling concern about supplies on the LME market. <0#LME-WHL>

This is reinforced by cancelled warrants — metal earmarked for delivery — at 414,525 tonnes, amounting to 35 percent of total aluminium stocks of 1.24 million tonnes MALSTX-TOTAL in LME-approved warehouses.

POLICY: Expectations that China would roll out more policy stimulus provided some positive sentiment on metals markets.

LEAD: Lead outperformed the base metals complex, ending up 1.3 percent at $1,837 a tonne on talk of capacity cuts in China due to environmental concerns.

PRICES: Copper gained 0.2 percent to $6,100 a tonne, zinc added 0.4 percent to $2,637 and tin slipped 1.9 percent to $19,470.

Nickel did not trade at the close and there were no bids or offers. It was little changed at $12,155 on the LME’s electronic trading system.

($1 = 6.8785 Chinese yuan renminbi)

Reporting by Pratima Desai; Additional reporting by Mai Nguyen and Zandi Shabalala; Editing by David Goodman, Mark Potter and Kirsten Donovan

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