* GRAPHIC-2019 asset returns: tmsnrt.rs/2jvdmXl
* Premium for cash over 3-month zinc highest since 1997 (Updates with closing prices)
By Pratima Desai
LONDON, May 20 (Reuters) - Zinc prices hit four-month lows on Monday as investors fretted about rising supplies from top producer China, while industrial metals overall came under pressure from trade tensions between the United States and China.
Benchmark zinc on the London Metal Exchange ended down 1.0% at $2,575 a tonne. Earlier, prices of the metal used to galvanise steel touched $2,553, the lowest since Jan. 22. It is down about 9% so far in May.
“There was another wave of selling this morning. The idea of much higher zinc supplies in China in the second half has hit sentiment,” a zinc trader said.
“It looks like there isn’t going to be a resolution to the trade dispute any time soon, that uncertainty will keep up pressure on the base complex.”
ZINC: Analysts expect China’s zinc production to climb around 5% in May from April to above 560,000 tonnes. Higher numbers are expected in the second half as new capacity ramps up.
A Reuters survey published earlier in May shows analysts on average expect a surplus of 20,000 tonnes this year after years of deficits, in a market estimated around 14 million tonnes.
POSITIONS: “Speculative positioning in zinc as of last Thursday shifted from flat to a net short of 2.1% of open interest or 3,300 lots (82,500 tonnes),” Marex Spectron analysts said in a note. “Whilst relatively small, this is a level not seen since Dec. 2018”.
STOCKS: However, low stocks of zinc in LME-approved warehouses, at 104,850 tonnes from above 250,000 tonnes in August last year, and large holdings of LME warrants are fuelling nervousness about shortages on the LME market. MZNSTX-TOTAL <0#LME-WHL>
This can be seen in the premium or backwardation for the cash over the three-month contract which ended at a 20-year high $150.50 a tonne on Friday. MZN0-3
TRADE: No further trade talks between top Chinese and U.S. negotiators have been scheduled since the last round ended on May 10 - the same day Washington raised the tariff rate on $200 billion worth of Chinese products to 25% from 10%.
PRICES: Copper ended 0.4% down at $6,029 a tonne after earlier touching $6,004, its lowest since Jan. 29.
Aluminium lost 2.1% to $1,797.5, lead slipped 1.2% to $1,804, tin ceded 0.3% to $19,450.
Nickel was untraded at the close, but was 0.3% lower at $11,980 on the LME’s electronic system.
DEAL: Aluminium came under pressure after the United States on Friday struck deals to lift tariffs on steel and aluminium imports from Canada and Mexico.
Most of the impact is expected to be seen in the physical market premium — paid above the LME price — for aluminium consumers in the United States. Last week the premium was above $400 a tonne.
Reporting by Pratima Desai; editing by Emelia Sithole-Matarise and Ed Osmond