* China probe into metals fraud widens
* Shanghai copper premiums fall $10 to $70-$90 -Shmet
* Coming up: U.S. Federal budget May at 1800 GMT (Updates with closing prices)
By Maytaal Angel
LONDON, June 11 (Reuters) - Zinc hovered near its highest levels in 15 months on Wednesday as investors eyed falling stocks and a pending mine supply shortfall next year, while copper steadied after recent falls following China’s port probe into warehouse fraud.
Daily data out earlier from the London Metal Exchange showed zinc stocks fell 1,100 tonnes to 694,650 tonnes - their lowest level in 4-1/2 years, and a portent of further tightness next year when one of the world’s largest zinc mines will shut.
Output from MMG Ltd’s Century zinc mine in Australia is expected to run dry in mid-2015, while its nearby Dugald River mine is expected to miss its start date of late 2015 due to poor ground conditions.
But William Adams, head of research at Fast Markets, cast doubt on the sustainability of zinc’s current rally: “I’d say the markets anticipated a large part of this (supply) issue in December and January.”
LME benchmark three-month zinc hit $2,146 a tonne, its highest since February last year, but pared gains. Untraded at the close, it was bid at $2,125 a tonne, down 0.3 percent.
LME copper steadied at $6,990 a tonne, up 0.2 percent, after touching $6,628 on Tuesday, its lowest since May 7 on worries that copper financing in China will be harder to come by as the port probe runs its course.
Premiums to obtain copper from Shanghai’s bonded areas dropped another $10 to $70-$90 a tonne on Wednesday, according to China price provider Shmet, down from $105-125 a week earlier. (www.shmet.com)
Meanwhile at least two global banks involved in commodity financing in China have asked some clients to shift copper and aluminium, used as collateral for loans, to better regulated warehouses, three sources said on Wednesday.
Also, worries over Chinese copper financing are prompting some banks to wind up deals or stop doing them altogether - and not just in the Qingdao port at the centre of a probe into possible fraud, traders said.
Commerzbank said positioning data from the U.S. Commodity Futures Trading Commission (CFTC) due at the end of the week is likely to reflect market sentiment towards the Chinese probe by showing a reduction in net longs.
“News of the investigations into warehousing practices in the Chinese port of Qingdao ... may have contributed to a further reduction in net long positions in the meantime - this is also suggested by the price slide following the latest report (last week) on market positioning,” the bank said.
Comex speculators cut net long positions by 5,075 contracts to 16,240 in the week to June 3, the CFTC report showed last week.
China is investigating a private metals trading firm over a suspected metal financing scam at Qingdao port, police sources said on Tuesday, as CITIC Resources Holdings Ltd warned that metal it owns at the port may be affected by the probe.
Meanwhile, an executive of a commodity hedge fund said the Chinese probe into financing of copper and aluminium may spread to other commodities such as iron ore and soybeans.
The brighter picture for growth especially in the United States is helping lift metals with tightening fundamentals like zinc, though a slowdown in China, the world’s top metals consumer, is keeping gains in check.
China will adjust its monetary policy to target specific areas of the economy that are in need of support, the Chinese cabinet said on Wednesday after a weekly meeting, highlighting government efforts to energise the slowing economy.
Nickel dropped to its lowest in a month at $18,250 a tonne. It later closed down 2.5 percent at $18,305, while tin hit a three-month low of $22,618 before paring losses to close down 0.2 percent at $22,825 a tonne.
Lead closed 0.7 percent lower at $2,125, while aluminium, untraded at the close, was bid at $1,866, down 1.7 percent.
Three month LME copper CMCU3
Most active ShFE copper SCFcv1
Three month LME aluminium CMAL3
Most active ShFE aluminium SAFcv1
Three month LME zinc CMZN3
Most active ShFE zinc SZNcv1
Three month LME lead CMPB3
Most active ShFE lead SPBcv1
Three month LME nickel CMNI3
Three month LME tin CMSN3
Additional reporting by Melanie Burton in SYDNEY; editing by Susan Thomas and David Evans