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METALS-Zinc slides to 2-week low as Chinese supply rises

Peter Hobson

(Recasts, updates throughout)

LONDON, July 4 (Reuters) - Zinc prices fell to their lowest in two weeks on Thursday as rising Chinese production and a collapse in the premium for cash metal on the London Metal Exchange (LME) pointed to a better supplied market.

Benchmark zinc on the LME was down 1.1% at $2,423 a tonne at 1427 GMT, within a whisker of last month's level of $2,412, the lowest in 5 and a half months.

The metal used to galvanize steel has tumbled more than 30% from a high early last year as a U.S.-China trade war weakened the demand outlook and traders braced for a surge of refined metal to end a supply shortfall.

Rising Chinese output, rumours that zinc is moving from Chinese bonded storehouses into the LME warehouse system and a big fall in the premium for LME cash zinc were pushing prices lower, Deutsche Bank analyst Nick Snowdon said.

"You could see more downside to the low $2,000s," he said, adding that prices were unlikely to fall much lower because of the low level of warehouses stocks.

DEFICIT: Higher output by Chinese smelters is expected to end a deficit that according to the International Lead and Zinc Study Group (ILZSG) amounted to 97,000 tonnes during the first four months of this year.

CHINESE OUTPUT: Chinese refined zinc output at 480,000 tonnes was up 7.4% in May compared to the same month in 2018.

SPREAD: The premium for cash zinc over the three-month contract on the LME fell to $14.50, down from more than $150 in May and the lowest since March, suggesting greater availability of nearby metal. <MZN0-3>

STOCKS: Zinc inventories in LME and Shanghai Futures Exchange (ShFE) warehouses fell in recent months to the lowest in more than a decade, but levels have begun to recover. <MZNSTX-TOTAL> <ZN-STX-SGH>

TRADE WAR: Top representatives of the United States and China are organising a resumption of talks for next week to try to resolve a year-long trade war between the two countries, Trump administration officials said.

GLOBAL FACTORIES: Data this week showed factory activity weakening in major economies around the world.

U.S. ECONOMY: The United States added fewer jobs than expected in June and its trade deficit jumped in May, suggesting economic growth slowed sharply in the second quarter.

OTHER METALS: LME copper was flat at $5,916 a tonne, aluminium rose 0.7% to $1,802, nickel fell 0.4% to $12,305, lead slipped 0.3% to $1,873 and tin was up 0.6% at $18,415.

(Reporting by Peter Hobson; Additional reporting by Mai Nguyen; Editing by Mark Potter and Alexandra Hudson)