* Escalating trade tensions give rise to risk aversion
* Premium for cash aluminium over three-month rises (Adds closing prices)
By Yilei Sun
LONDON, July 10 (Reuters) - Zinc prices fell to their lowest in more than a year on Tuesday as expectations of rising supplies and a narrowing deficit sparked a sell-off that accelerated after prices fell below key technical support levels.
Benchmark zinc on the London Metal Exchange ended down 2.8 percent at $2,630 a tonne. Prices of the metal used to galvanise steel earlier fell to $2,607.50, the lowest since June 21 last year.
Shortages saw zinc prices rise 60 and 29 percent in 2016 and 2017 respectively. Losses so far this year total 20 percent.
“The concentrate market will become better supplied as this year progresses and new mine and reactivated supply comes on stream,” said CRU analyst Helen O’Cleary.
“Section 232 tariffs on steel products (including galvanised steel) and escalating trade tensions have given rise to risk aversion.”
TARIFFS: U.S. President Donald Trump has rattled the world trade order this year by seeking to renegotiate the terms of some of the United States’ trading relationships, in particular with China. He has imposed tariffs on some imports including steel, raising fears of a global trade war.
SUPPLY: Earlier this year, the International Lead and Zinc Study Group (ILZSG) said some 880,000 tonnes of additional zinc mine capacity was due to come on stream this year.
The global market balance in zinc will be much less tight this year due to mine openings and expansions, Joao Jorge, director of market research and statistics at ILZSG said.
FUNDS: Traders said many funds with bets on higher zinc prices were cutting their positions, which had helped fuel downward momentum and a break of key technical levels such as the 100-week moving average at around $2,890.
“There is very little in the way of technical support,” one trader said. “CTAs have sold aggressively over the past month.”
CTAs refers to Commodity Trading Advisors, funds that trade using buy and sell signals generated by numerical models.
ALUMINIUM: Falling stocks of aluminium, down at 1.116 million tonnes from 2.297 million tonnes in January last year, have created concern about availability on the LME market.
This has seen the premium for the cash over the three-month contract rise to $24.50 a tonne from a discount early in June. This premium or backwardation is expected to attract more aluminium to the LME market.
DOLLAR: Industrial metals overall came under pressure from a higher U.S. currency, which makes dollar-denominated commodities more expensive for non-U.S. firms.
PRICES: Copper was down 0.9 percent at $6,332 a tonne, aluminium fell 1.5 percent to $2,089 a tonne, lead lost 1.1 percent to $2,313, tin rose 0.7 percent to $19,775 and nickel ceded 0.4 percent to $14,155.
Editing by Pratima Desai, Mark Potter and David Evans