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METALS--Copper, aluminum, zinc rise to multi-year highs as China reforms curb supply

supply@ (Adds comment, detail, updates prices) MELBOURNE, Aug 17 (Reuters) - London copper, aluminum and zinc rose to multi-year highs on Thursday, leading a broad-based rally in metals, on expectations that China's reform of its metals industry will curb supply against a background of robust demand. A weaker dollar has added heat to the move in metals, but the broader story relies on China's property sector where despite moves from Beijing to rein in its overheated property sector, demand remins robust, said analyst Daniel Morgan of UBS in Sydney. "People have been waiting for the property slowdown in China to weigh on demand. We are squarely in the third quarter now and that hasn't happened... every month things are okay," he said. "Overall, the space is pretty healthy. Miners are making good money now and I think they should be expcting to for quite a few months."

FUNDAMENTALS

* LME COPPER: London Metal Exchange copper rose to its highest since Nov. 27, 2014 at $6,580 a tonne, before paring gains to $6,556 a tonne, still up 0.4 percent and extending the prior session's 2.4 percent rally. Copper prices are up 18 pct this year.

* LME: LME aluminum rose to its highest since Sept 8, 2014, while zinc climbed to it highest since Oct 16, 2007, at $3,145 a tonne. Both LME zinc and LME lead held the prior day's 5 percent gains and all three metals are up between 21 percent and 25 percent this year.

* SHFE: On the Shanghai Futures Exchange (ShFE), metals held onto their overnight rallies. ShFE zinc rose by its upper limit of 6 percent, ShFE lead rallied 5.75 percent while ShFE aluminum and nickel were both 3.5 percent higher and ShFE copper rose 2.5 percent.

* U.S. ECONOMY: U.S. homebuilding unexpectedly fell in July as the construction of multi-family houses tumbled to a 10-month low, but strong job growth is expected to continue to support the housing market recovery.

* USD: Prospects for a slower pace of interest rate rises in the United States undermined the dollar and offered an extra lift to metals.

* U.S. INTEREST RATES: Federal Reserve policymakers appeared increasingly wary about recent weak inflation and some called for halting interest rate hikes until it was clear the trend was transitory, according to the minutes of the U.S. central bank's last policy meeting.

* ZINC: Chinese traders are diverting money from steel to zinc on the Shanghai Futures Exchange after a hike in trading fees on Monday cut the appeal of steel even as booming construction activity fuels demand for steel-making essentials like zinc.

* CAPACITY CUTS: China's top steel-making province has pledged to fulfill capacity cutting targets for this year in steel, cement, coal and glass by the end of September, under efforts to tackle air pollution ahead of winter, an environment official said on Wednesday.

*COMING UP: U.S. Industrial production for July at 1315 GMT PRICES

0521 GMT

Three month LME copper 6559.5 Most active ShFE copper 51340 Three month LME aluminum 2108 Most active ShFE aluminum 16595 Three month LME zinc 3140 Most active ShFE zinc 25975 Three month LME lead 2527 Most active ShFE lead 20490 Three month LME nickel 10820 Most active ShFE nickel 88090 Three month LME tin 20300 Most active ShFE tin 145340 LME/SHFE COPPER LMESHFCUc3 368.02 LME/SHFE ALUMINIUM LMESHFALc3 267.39 LME/SHFE ZINC LMESHFZNc3 970.68 LME/SHFE LEAD LMESHFPBc3 43.21 LME/SHFE NICKEL LMESHFNIc3 1709.84

(Reporting by Melanie Burton; Editing by Biju Dwarakanath and Christian Schmollinger)