June 22, 2017 / 12:36 PM / a month ago

METALS-Aluminium hovers near 6-week low, at risk from oversupply

3 Min Read

* China's aluminium output rising since March

* Market focused on falling zinc stocks, cancelled warrants

* China aluminium output cuts could move the needle -analyst (Updates zinc, adds closing prices)

By Pratima Desai

LONDON, June 22 (Reuters) - Aluminium prices held near six-week lows on Thursday as the market focused on rising supplies and exports from top producer China, lower output costs and higher inventories.

Benchmark aluminium on the London Metal Exchange closed up 0.2 percent at $1,870 a tonne after earlier touching $1,866.50, near Wednesday's lowest since May 11 of $1,866.

"China is producing and exporting more aluminium. Rising stocks do not signal a tight market," said Julius Baer analyst Carsten Menke. "Production costs have come down because coal prices are lower."

EXPORTS: China's aluminium exports are rising. In May the country exported 460,000 tonnes of unwrought aluminium and aluminium products, up from April's 430,000 tonnes.

OUTPUT: China's aluminium production last year accounted for 55 percent of the global total, estimated at nearly 59 million tonnes, according to International Aluminium Institute. Its output has been rising since March.

INVENTORIES: Aluminium stocks in LME warehouses are up around 13,000 tonnes this week to above 1.43 million tonnes.

SHANGHAI: Stocks in warehouses monitored by the Shanghai Futures Exchange at 433,110 tonnes are more than four times the levels seen in January.

POWER: Electricity, generated by burning coal, accounts for 30 to 40 percent of aluminium production costs in China. Lower coal prices cut output costs and boost margins.

HIGH: Aluminium hit $1,981 in March, its highest since December 2014 on expectations of falling supplies from China, where an environmental crackdown could mean output cuts during the winter months starting in November.

POLLUTION: The crackdown on pollution is part of a broader move to reduce overcapacity, boost revenues and help improve banks' balance sheets under pressure from non-performing loans, said Goldman Sachs analyst Max Layton.

BANKS: "Steel and coal output cuts were about bank balance sheets in the first instance, they also reduced pollution. These cuts were put in place early last year when non-performing loans were spiking," Layton said. "China's aluminium output cuts will move the needle, you are looking at a balanced Chinese market over the next couple of years and lower export growth."

ZINC: Zinc closed up 2.3 percent at $2,700 a tonne. Earlier it touched $2,710, its highest since April 7, on falling stocks in LME warehouses, which are down nearly 30 percent since January to 304,000 tonnes, and on cancelled warrants -- metal earmarked for delivery -- at above 65 percent.

PRICES: Copper ended flat at $5,743, lead finished up 0.9 percent at $2,205, tin closed 1 percent lower at $19,300 and nickel was up 0.1 percent at $9,010 a tonne.

Additional reporting by Maytaal Angel; Editing by David Evans

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