METALS-Zinc gains as inventories fall, shrugs off hidden stock

Eric Onstad

* GRAPHIC-2019 asset returns: http://tmsnrt.rs/2jvdmXl (Adds analyst comment, updates prices, changes dateline from SINGAPORE)

LONDON, Oct 25 (Reuters) - Zinc prices rose on Friday as London Metal Exchange inventories touched the lowest level in 12 years, though analysts said the higher prices failed to reflect large amounts of hidden stock.

Inventories in LME-registered warehouses <MZNSTX-TOTAL> fell to 58,525 tonnes, their lowest since October 2007 after sliding by half this year.

"In the background, we think there are a lot of off-exchange stocks in zinc and that the falls in exchange stocks are misleading," said Caroline Bain, chief commodities economist at Capital Economics in London.

"All the signs are that demand is very weak. I was just looking at galvanised steel production in China and that's in deep negative territory despite wider steel production growing strongly."

The bulk of zinc production is used for galvanising steel.

LME benchmark zinc was the best performer on the exchange on Friday, climbing 0.8% to $2,511 a tonne by 1045 GMT.

LME zinc touched a four-month peak of $2,567.35 on Monday.

* ZINC: The premium for LME cash zinc over the three-month contract <MZN0-3> touched its highest in nearly a month at $41.25 a tonne, indicating tight nearby supplies in the LME system.

* CHILE UNREST: Copper prices were supported after mining companies in top producer Chile said nationwide riots had mostly spared production but operations had been affected by the hobbling of port facilities, public transportation and supply chains.

LME copper rose 0.2% to $5,890 a tonne and was set for a third straight weekly gain after hitting its highest in more than five weeks in the previous session.

* COPPER SPREAD: The LME cash copper discount to the three-month contract <CMCU0-3> fell to its lowest in nearly two months at $16.25 a tonne, indicating tightening nearby supplies.

* GLENCORE: Miner and trading giant Glencore on Friday reported a 4% drop in copper output so far this year and trimmed full-year guidance as it prepared to suspend some operations in the Democratic Republic of Congo.

* NICKEL: China's nickel ore imports in September rose 24.6% from the previous month to their highest since at least 2016, data showed, as stockpiling accelerated ahead of a January ban on shipments from top miner Indonesia.

* PRICES: LME aluminium edged up 0.03% to $1,724.50 a tonne, nickel rose 0.1% to $16,870, lead added 0.4% to $2,233 and tin was down 0.2% at $16,745.

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(Additional reporting by Mai Nguyen in Singapore Editing by David Goodman)