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METALS-Chile and China to shape copper's fortunes next year

* LME/ShFE arb: http://bit.ly/2wZSAEz

* Market looking at potential for 2018 supply disruptions

* Rising China aluminum stocks suggest surplus

* Zinc builds on 2016 gains, analysts see higher 2018 levels (Adds closing prices)

LONDON, Dec 29 (Reuters) - China's war on polluting industries, its supply reforms and robust demand growth have this year combined to create a bonanza for copper and aluminum which are heading for their biggest rises since 2009.

However, traders and funds taking profits and squaring books on Friday ahead of the year-end weighed on prices.

Benchmark copper ended down 0.6 percent at $7,247 a tonne, but prices of the metal used in power and construction are up 31 percent this year and are holding near a 4-year peak at $7,312.50 seen on Thursday.

Aluminum slipped 0.7 percent to $2,268, but is up 34 percent on the year. Prices of the metal used in transport and packaging earlier touched near five-year peaks of $2,290.50 a tonne.

"China will again next year play a critical part in what happens to industrial metals. Capacity cuts and solid demand next year mean we are optimistic," said Christoph Eibl, chief executive at Tiberius Asset Management.

"There are labor negotiations and potential for strikes in Chile. We are seeing more investors come back into the commodity space, it's a very constructive picture."

China is the world's largest consumer of industrial metals, accounting for nearly half of global copper and aluminum demand estimated at around 23 million tonnes and 62 million tonnes respectively for next year.

A major trigger for copper came after China proposed a ban imports of scrap metal from the end of next year, fueling expectations it would import more refined metal and products.

Recently, as the market started to look ahead to 2018, jitters about supply disruptions emerged, giving copper another boost.

Analysts at Citi say there are over 30 labor contracts, covering around 5 million tonnes of mine supply, due to expire next year, most of them in Chile and Peru.

"We expect copper demand growth will remain solid on the back of stronger global growth, and that China will support its 'old-economy' growth engine with a notable first quarter 2018 credit impulse," Citi analysts said in a note.

WAR ON SMOG

Aluminum's story has mainly been about output cuts in top producer China, which clamped down on unauthorized aluminum capacity and older more polluting smelters.

China's war on smog has also meant output cuts during the winter months, starting in November.

But in recent weeks, concerns about aluminum demand and surpluses in China have been fueled by rising inventories in warehouses <AL-STX-SGH> monitored by the Shanghai Futures Exchange, at a record above 750,000 tonnes.

China's tough environmental stance also underpinned expectations of zinc shortages created by mine closures and the idea of it importing more of the metal used to galvanize steel.

Zinc closed up 0.5 percent at $3,319. It has risen 29 percent this year after a 60 percent surge in 2016.

"The global zinc market is likely to remain in deficit in the years to come, as new mined supply and restarts are unable to offset previous capacity closures," analysts at National Australia Bank said in a note.

Tight supplies has seen stocks of zinc in LME approved warehouses fall 70 percent since September 2015 to around 180,000 tonnes, a fraction of global demand estimated at 14 million tonnes.

Lead fell 1.5 percent to $2,487.5 a tonne. It is up 23 percent so far this year, its largest gain since 2009.

Prices hit six-year highs of $2,620.50 in October due to seasonally strong demand from battery makers, tight supplies due to mine shutdowns and dwindling inventories.

Nickel added 3.3 percent to $12,760 for a gain of 27 percent this year. Tin climbed 0.5 percent to $20,025, but that is down 5 percent from 2016.

(Editing by David Evans and Alison Williams)