METALS-Zinc scales 10-year peak as base metals rally

* Metals rally as dollar slides to three-year low

* GRAPHIC-2018 asset returns:

* LME/ShFE arb: (Updates with closing prices)

By Jan Harvey

LONDON, Jan 15 (Reuters) – Zinc hit another 10-year high on Monday as base metals rallied across the board on the back of a faltering dollar, with expectations that the European Central Bank may start trimming its stimulus programme lifting the euro to a three-year peak.

The dollar’s consequent weakness made assets priced in the U.S. unit cheaper for holders of other currencies.

“It is a dollar story … which is behind this move,” said ING analyst Warren Patterson. “If you look at the speculative position in the metals, there is potential for further upside, if we continue to get positive economic data and strong manufacturing data.”

Fears over potential supply shortages and another drop in on-warrant inventories available to the market are helping to support the price of zinc, used primarily to galvanise steel.

The market has been disappointed not to have seen more zinc production capacity coming back from Glencore, Patterson said, after the company curtailed 500,000 tonnes of capacity from late 2015. Glencore announced plans in December to restart its Lady Loretta mine in the first half of this year.

“At least for the first half of this year, the zinc market is going to be fairly tight,” he said.

* ZINC PRICES: Three-month zinc on the London Metal Exchange closed 1.2 percent up at $3,423 a tonne, having earlier touched a peak of $3,440, its highest since August 2007.

* ZINC INVENTORIES: On-warrant zinc stocks in LME-registered warehouses fell by 10,000 tonnes to 116,675 tonnes, their lowest since early October, data showed on Monday, after fresh cancellations in New Orleans. Headline stocks are unchanged.

* POSITIONING: Large holdings of LME zinc warrants <0#LME-WHL> have stoked concerns about availability, keeping the premium for cash over the three-month contract CMZN0-3 at $44.80 a tonne, the highest since mid-November.

* COPPER: LME copper advanced 1.4 percent to $7,210 a tonne by the close. Prices have oscillated around a $7,070 to $7,315 range since late December, largely because of resilient demand from China.

* ALUMINIUM PRICES: LME aluminium finished 0.6 percent up at $2,227 a tonne. In late December it reached $2,290.50, its highest in more than four years, partly down to output cuts in top producer China.

* INVESTORS: Hedge funds and money managers trimmed net long positions in COMEX copper contracts in the week to Jan. 9, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

* OTHER METALS: LME nickel closed with a 1.1 percent gain at $12,860 a tonne and tin finished 0.1 percent down at $20,300, off an earlier three-month high of $20,350. Lead ended the day 1.5 percent up at $2,587.

Additional reporting by Melanie Burton in Melbourne; Editing
by David Evans and David Goodman

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