April 3, 2017 / 10:18 AM / 3 years ago

METALS-Aluminium holds near 28-month high on worries over supply

* LME/ShFE arbitrage: tmsnrt.rs/2oQ5nm2

* China manufacturing expands, but at a slower pace

* U.S. manufacturing ISM for March shows employment growth strongest since June 2011 (Adds closing prices, comment and U.S. data)

By Pratima Desai

LONDON, April 3 (Reuters) - Aluminium held firm on Monday near the 28-month high seen last week on expectations of a tighter market, but rising prices are likely to mean producers restart capacity and fill any gap between supply and demand.

Benchmark aluminium on the London Metal Exchange ended down 0.5 percent at $1,952 a tonne. Last week the metal used widely in transport and packaging rose to $1,981, its highest since Dec 2014.

“We’ve got the broader rally in commodities, which has been playing out for a while now. Specifically for aluminium there is talk about capacity cuts in China because of environmental concerns,” said Bernstein analyst Paul Gait. “The rally may run for a little longer, but historically we’ve seen as the price goes up, profitability rises and so does supply.”

CHINA ALUMINIUM: China early last month ordered steel and aluminium producers in 28 cities to slash output during the winter months in a bid to curb noxious smog. China is the world’s largest aluminium producer.

ALUMINIUM STOCKS: Focus on falling stocks of aluminium in LME approved warehouses, which at nearly 1.9 million tonnes are down nearly 20 percent since mid-January. Cancelled warrants — metal earmarked for delivery — at 46 percent are also a concern for those wanting to trade on the LME. MALSTX-TOTAL

PRODUCTION: “Aluminum looks very strong on the charts, but its advance is largely predicated on Chinese cuts due for later this year which may or may not materialise,” INTL FCStone analyst Edward Meir said in a note.

VOLUMES: Trading volumes thin overall due to Chinese holidays on Monday and Tuesday.

CHINA MANUFACTURING: Some pressure on base metals after data showed activity at China’s factories expanded for a ninth straight month in March but at a softer pace as new export orders slowed. That has raised questions about whether a recent pickup in global demand is losing steam.

U.S. MANUFACTURING: ISM U.S. manufacturing activity index at 57.2 in March compared with a consensus at 57.0. The employment index rose to its highest since June 2011, boosting the U.S. currency and making dollar-denominated metals more expensive for non-U.S. firms.

PRICES: Copper ended down 1.4 percent at $5,753 a tonne, zinc fell 2.2 percent to $2,708, lead lost 2.3 percent to $2,287, tin lost 0.6 percent to $20,050 and nickel slipped 1.8 percent to $9,850.

COPPER: The copper market is likely to see a small shortage as early as this year because of a lack of new supply and the removal of up to 800,000 tonnes over the past 18 months in response to modest prices, Rio Tinto’s copper and diamonds chief will say on Tuesday.

CHILE: Top mining executives gather in Santiago for the CESCO/CRU copper conference to discuss copper’s fundamentals. Sources say the mood is more optimistic than last year when the event was preceded by prices falling to 6-1/2 year lows.

Editing by David Evans

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