METALS-Zinc steady near 3-yr top on bets for shortages, growth

Wed Jul 9, 2014 1:25pm EDT

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* Fresh asset allocation lifts metals

* Options-related buying boosts zinc -Triland

* Coming up; FOMC minutes at 1800 GMT (Adds details, closing prices)

By Eric Onstad

LONDON, July 9 (Reuters) - Zinc steadied on Wednesday but stayed near the previous session's 3-year high as investors held firm to the view that the metal will face shortages due to mine closures and is currently a good proxy for recovering global growth.

Copper prices hovered near their highest in almost five months, while aluminium touched a fresh 13-month top.

Three-month zinc settled at $2,281 a tonne, down 0.04 percent, having traded in positive territory for most the day and held close to a three-year high of $2,318.50 seen on Tuesday.

Zinc has rallied 11 percent since the beginning of June as forecasts of deficits have attracted buyers, and now the circle of buyers seems to be widening, said Nic Brown, head of commodities research at Natixis.

"It may be that the improvement in zinc prices is a re-rating for commodities more generally among the investment community as we get further and further into the economic cycle," he said, noting that upbeat data recently has improved the outlook for the U.S. and Chinese economies.

"You're looking for those commodities that are moving increasingly into deficit, and of course zinc is at the top of the list."

Zinc prices caught a lift on options-related purchases, broker Triland said. "Volatility on zinc options has been well bid in recent days as upside calls for Dec. 14 in particular have been bought. This has echoes of similar strategies in nickel earlier this year."

COPPER, ALUMINIUM

The brighter growth outlook has also helped lift copper and aluminium, and news of tighter supply-demand fundamentals affected both.

Copper ended up 0.36 percent at $7,156 a tonne after hitting its highest since Feb. 19 on Tuesday at $7,212 a tonne. Prices were inching towards the February top of $7,220, opening the way to levels last seen in late January, traders said.

Copper prices have rallied about 7 percent since mid-June to above $7,000 a tonne, driven by a lack of supply and a chart picture that has encouraged fresh allocation by funds.

China's moves to loosen monetary policy have also fed the copper rally, which may stretch further after Wednesday's relatively benign inflation data handed policymakers scope for fresh action, said Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin in Sydney.

"CPI lower than expected indicates support for the story of stimulus. (Premier Li) has got room and money to move. And I think that's been the core that over the last couple of weeks that has seen metals prices higher," he said.

China's consumer inflation cooled slightly more than expected in June, pointing to lingering weakness in the economy.

Dwindling copper supplies also have underpinned prices.

Chile's Codelco has asked certain buyers of refined copper in China to cancel some term shipments scheduled for delivery in the second half of the year as the firm processes less ore from a new mine, three sources said.

Among other metals, aluminium hit a new 13-month peak of $1,959 a tonne before trimming gains to end at $1,950 a tonne, up 0.6 percent.

Alcoa Inc has increased its estimate for the global aluminium market deficit this year due to capacity cuts in China, the world's No. 1 producer, a senior executive said on Tuesday.

Lead ended down 0.99 percent at $2,195 a tonnes, tin shed 0.98 percent to $22,280 a tonne while nickel ended down 1.26 percent at $19,525 a tonne.

The export of hidden Chinese tin stocks is likely to be behind a puzzling rise in London Metal Exchange (LME) inventories that has frustrated investors who expected to see shortages this year.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin (Additional reporting by Melanie Burton; and Maytaal Angell; editing by Jane Baird and Keiron Henderson)

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