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METALS-China supply concerns help aluminum to two-week high

Pratima Desai

* Aluminum resistance seen at $1,870

* Aluminum canceled warrants and large holding in focus (Recasts, adds comment, changes dateline from Singapore)

LONDON, May 16 (Reuters) - Aluminum prices climbed to two-week highs on Thursday after news of production shutdowns at one of the country's biggest smelters fueled worries about supplies from top producer China.

Benchmark aluminum on the London Metal Exchange (LME) was up 0.6 percent at $1,867 a tonne by 1055 GMT, its highest since May 3.

"Aluminum prices have been lifted by output cuts, due to regulatory, environmental reasons," said Julis Baer analyst Carsten Menke, adding that the impact on the global market remained to be seen.

"But this is something that has made aluminum bears aware that prices are not a one-way street

SHUTDOWN: Xinfa Group, one of China's biggest aluminum smelters, is closing all production lines on its 2.8 million tonnes per year alumina refinery in Shanxi for an unspecified period amid an environmental dispute, causing alumina prices to spike.

Alumina can account for up to a third of aluminum production costs. Prices of alumina have risen more than 10 percent to more than 3,000 yuan ($436) a tonne over the past four weeks. <SMM-ALM-NCHN>

Jackie Wang, analyst at metals consultancy CRU in China, expects alumina prices to remain high, providing support to aluminum prices.

SHANGHAI: Aluminium on the Shanghai Futures Exchange (ShFE) touched a seven-month high 14,395 yuan a tonne in early Asian trade.

China is the world's largest aluminum consumer. It is also the world's largest producer, accounting for 57 percent of global output estimated at more than 64 million tonnes in 2018.

Aluminum stocks in warehouses monitored by ShFE, at about 600,000 tonnes, have fallen nearly 40 percent over the past year.

TECHNICALS: Support for LME aluminum kicks in around the 21-day moving average of $1,835.

Resistance is at $1,870, where the 50-day and 100-day moving averages are converging.

"Funds have been covering their short positions, some are reversing into longs," one aluminum trader said, adding that it could take several attempts to break above $1,870.

WARRANTS: A large holding of aluminum warrants, between 30 and 39 percent, is fueling concern about supplies on the LME market. <0#LME-WHL>

This is reinforced by canceled warrants -- metal earmarked for delivery -- at 414,525 tonnes, amounting to 35 percent of total aluminum stocks of 1.24 million tonnes <MALSTX-TOTAL> in LME-approved warehouses.

POLICY: Expectations that China would roll out more policy stimulus provided some positive sentiment on metals markets.

PRICES: Copper was up 0.5 percent at $6,116 a tonne, zinc added 0.5 percent to $2,639, lead rose 1.1 percent to $1,833, tin slipped 1.8 percent to $19,485 and nickel was up 0.5 percent at $12,210. ($1 = 6.8785 Chinese yuan renminbi)

(Reporting by Pratima Desai Additional reporting by Mai Nguyen Editing by David Goodman)