December 3, 2018 / 11:43 AM / 16 days ago

METALS-Copper hits two-month high after U.S.-China trade truce

* Zinc stocks at lowest since Feb 2008

* Premium for cash zinc over 3-month still elevated (Updates with closing prices)

By Pratima Desai

LONDON, Dec 3 (Reuters) - Prices of industrial metals rose on Monday, with copper hitting a two-month high, after the United States and China agreed to a truce in a trade dispute that has undermined confidence in economic growth prospects.

Benchmark copper on the London Metal Exchange ended up 1.6 percent at $6,295 a tonne. Prices of the metal used as a gauge of global economic health hit $6,352 in early trading, its highest since Oct. 4.

“The mood turned positive after China and the United States announced their truce, but I’m not sure it will last; there are too many differences to overcome,” said Commerzbank analyst Eugen Weinberg. A weaker dollar was another positive influence, he added.

TARIFFS: Washington and Beijing agreed in Argentina to halt additional tariffs in a deal that keeps their trade war from escalating as the two sides try again to bridge their differences within 90 days.

“We cannot get too excited about prospects for metals. Trade issues will continue to dog the global economy for much of the year,” said INTL FCStone analyst Edward Meir. “The Argentina agreement is not going to be a significant game-changer.”

Meir said low inventories across most metals could be a “bullish catalyst”, but the inventory argument would become difficult to sustain with the prospect of a deteriorating macroeconomic outlook next year.

DOLLAR: A lower U.S. currency makes dollar-denominated commodities cheaper for holders of other currencies - a relationship used by funds to generate buy and sell signals from mathematical models. FRX/

INTEREST RATES: U.S. Federal Reserve Chair Jerome Powell last week said interest rates were now “just below” estimates of a level that neither brakes nor boosts a healthy U.S. economy, comments that many investors read as signalling the tightening cycle is drawing to a close.

CHINA: Industrial metal price gains were capped to an extent by a survey showing China’s factory activity grew slightly in November, while new export orders extended their decline.

China accounts for about half of global demand for base metals.

ZINC: Worries about zinc supplies on the LME market have been fuelled by inventories in LME-approved warehouses. Inventories have more than halved since August to 112,575 tonnes, their lowest since 2008.

This nervousness is why the premium for cash LME zinc over the three-month price CMZN0-3 soared to $113 a tonne on Friday, its highest since 1997. It was last around $87 a tonne.

Three-month zinc was up 1.6 percent at $2,583.

PRICES: Aluminium closed 1.1 percent higher at $1,974 a tonne, lead slipped 0.3 percent to $1,964.5, tin rose 2.5 percent to $18,865 and nickel was up 0.5 percent at $11,250.

Reporting by Pratima Desai; Additional reporting by Mai Nguyen; Editing by Mark Potter and Andrew Heavens

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