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METALS-Shanghai aluminium hits lowest since inception, copper slips

* ShFE aluminium hits contract low on overcapacity

* Jinchuan declares force majeure on some copper concentrate buys

* Coming up: FOMC ends two-day meeting, to announce rate decision

(Adds analyst, trader comment; updates prices)

SYDNEY, March 19 (Reuters) - Shanghai aluminium futures fell on Wednesday to their lowest since inception, dogged by oversupply and tightening credit that has eroded demand.

London copper also fell due to weak demand and worries about credit conditions in top user China.

China's aluminium production this year is expected to outpace even last year's levels, which has driven down domestic prices, said Citi analyst Ivan Szpakowski in Shanghai.

"We've also seen a deterioration in demand, driven primarily by the credit tightening we saw last year. That has flowed through into real demand now," he said.

The most active aluminium futures on the Shanghai Futures Exchange (ShFE) fell to a contract low of 12,880 yuan ($2,100) a tonne, the lowest since its launch in September 2005.

Beijing has vowed to curb overcapacity in the sector.

China's aluminium smelters are likely to shut about 2 million tonnes of operating capacity in the coming months as they try to limit losses amid falling prices and dwindling government support, industry sources said earlier this month.

China's aluminium production grew 10 percent to 22 million tonnes last year.

In other metals, three-month copper on the London Metal Exchange slipped by 0.1 percent to $6,475 a tonne by 0737 GMT, after ending the previous session little changed.

London copper edged to a one-week high on Tuesday at $6,570 a tonne, but has failed to build on momentum since hitting a three-and-a-half-year low of $6,376.25 a tonne on March 12.

The most-traded June copper contract on the Shanghai Futures Exchange ended down 0.1 percent at 44,740 yuan ($7,200) ($7,200) a tonne.

Domestic purchases of copper have picked up, with local prices for physical metal trading at a premium against ShFE for a fourth session on Tuesday. However, premiums for stocks in China's customs cleared zones continued to fall, by $5 to $115-$135, according to China price provider Shmet.

Worries about spreading bankruptcies in China, after a solar panel-maker defaulted on a bond payment earlier this month, sent copper prices tumbling to three-and-a-half year lows in London, and to four-and-a-half year lows in Shanghai last week.

The looming bankruptcy of a Chinese developer owing billions of yuan to domestic banks has raised worries that a softening property market is heightening risks for the financial system.

But the localised focus of the firm, and the nuanced reaction of investors, shows that financial markets are not pricing in the bursting of a real-estate bubble just yet.

Soothing geopolitical tensions over Ukraine somewhat, Russian President Vladimir Putin signed a treaty in Moscow on Tuesday making Crimea part of Russia again, but said he did not plan to seize any other regions of Ukraine.

Worries about Russian sanctions combined with a halt to Indonesian ore supplies spurred nickel prices to an 11-month peak on Wednesday to $16,310 a tonne.

China's supplies could potentially be cut further after a production problem at top nickel producer Jinchuan.

Later in the session, the U.S. Federal Reserve is due to keep interest rates low even as it scales back the amount of money it is pumping into the economy.

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

($1 = 6.1920 Chinese Yuan)

(Reporting by Melanie Burton; Editing by Joseph Radford and Sunil Nair)