* LME/ShFE arb: http://bit.ly/2wZSAEz
* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl
* Aluminum stocks in ShFE warehouses at record highs (Recasts, adds comment changes dateline from Melbourne)
LONDON, Dec 19 (Reuters) - Aluminum prices touched a two-week peak on Tuesday as the prospect of slower supply growth from top producer China prompted investors to buy, but the likelihood of a surplus next year capped gains.
Benchmark aluminum on the London Metal Exchange was up 0.1 percent to $2,077 a tonne at 1014 GMT from an earlier $2,078.5, its highest since Dec. 4. It has risen more than 20 percent so far this year on expectations of a tighter market.
"China has this year taken out 8 percent of aluminum capacity. It looks highly unlikely this capacity will be allowed to restart in 2018," said CRU Group analyst Eoin Dinsmore.
"We expect Chinese aluminum production growth at 5 percent next year and the year after, down on what we've seen in recent years ... But China will continue to produce more than it consumes next year."
IAI: Data from the International Aluminium Institute showed China produced 16.7 million tonnes in the first half of 2017, a rise of 1 percent from the second half of last year. That compares with a rise of 10 percent in the second half of last year from the first half.
OUTPUT: China last year accounted for 55 percent of global output estimated at nearly 59 million tonnes against 11 percent of 25 million tonnes at the turn of the millennium.
STOCKS: Aluminium stocks in warehouses monitored by the Shanghai Futures Exchange at a record 736,389 tonnes suggest surpluses, analysts say.
ENVIRONMENT: China's war on pollution has involved clamping down on unauthorized aluminum capacity and carrying out inspections to ensure facilities meet the required standards.
BULLS VS BEARS: "Bears maintain the cuts the Chinese have been putting through are going to be more than offset by new production," INTL FCStone analyst Edward Meir said in a note.
"Bulls argue the cuts will not only stick, but will likely expand as well as the government maintains its pollution fight. We think there is a good chance the government could move again, especially if it sees no meaningful decline in overall production levels -- or pollution readings."
BATTERIES: Lead was down 0.1 percent lower at $2,558. It touched $2,567 on Monday, its highest since Oct. 16, boosted by expectations of strong demand from auto battery makers over the winter.
WARRANTS: A large position holding between 40 and 49 percent of lead warrants and cash contracts is fueling worries about shortages on the LME market.
The premium for the cash <MPB0-3> over the three-month contract rose to $24 a tonne at the close on Monday.
OTHER METALS: Copper fell 0.2 percent to $6,890 a tonne, zinc slipped 0.5 percent to $3,180, tin lost 0.3 percent to $19,300 and nickel ceded 0.5 percent to $11,775.
(Editing by David Evans)