METALS-Zinc, nickel rise on China steel industry crackdown

* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm2

* Chinese crackdown on polluting mills supports prices (Updates throughout, changes dateline from MELBOURNE)

LONDON, May 22 (Reuters) - Zinc and nickel touched their highest in over two-weeks on Monday after China launched a regional crackdown on the steel industry, including production of the two metals.

Benchmark zinc on the London Metal Exchange rose 1 percent to $2,641 per tonne, its highest since May 2 while nickel hit its highest since May 3, up 0.6 percent to $9,415.

"The Chinese government is becoming quite aggressive in targeting environmental problems," Oxford Economics commodities analyst Dan Smith said.

Nickel is mainly used to make stainless steel, while zinc is used to galvanise steel.


CHINA POLLUTION: China's Tangshan city launched a campaign to improve air quality last week, saying steel mills in the country's top producing region that fail to meet emission standards face suspension and heavy fines.

INVENTORIES: Zinc prices are also supported by falling stocks in LME-approved warehouses, with inventories down about 20 percent this year to 342,675 tonnes. These are levels last seen in 2009. <MZNSTX-TOTAL>

ZINC: Prices are up more than 40 percent over the last year mainly as closures and suspensions of mines fuelled worries of shortages.

STEEL: Chinese steel futures jumped more than 6 percent on Monday to their highest since March.

FREEPORT: An estimated 9,000 workers at the giant Grasberg copper mine operated by the Indonesian unit of Freeport McMoRan Inc will extend a strike for a second month, a union official said on Saturday, in an ongoing dispute over employment terms and layoffs.

COPPER: Copper had edged down 0.1 percent to $5,688 a tonne, having hit the highest since early May at $5,694.50 on Friday.

CHINA ECONOMY: China's economy will likely expand around 6.8 percent in the second quarter of 2017, the State Information Center said in an article published in the state-owned China Securities Journal on Saturday.

DOLLAR: Support for base metals also came from a lower U.S. currency, which when it falls makes dollar-denominated metals cheaper for non U.S.-firms, potentially boosting demand.

PRICES: Aluminium was up 0.2 percent at $1,939.50, lead gained 0.9 percent to $2,113 and tin added 0.7 percent to $20,550.

(Additional reporting by Melanie Burton in Melbourne; editing by Susan Thomas)