METALS-Zinc hits four-month peak as availability on LME declines

By Pratima Desai

LONDON, July 21 (Reuters) - Zinc prices rose to four-month highs on Monday as worries about tightness on the London Metal Exchange surfaced after data showed more than half of stocks in its approved warehouses had been marked to leave the system.

Benchmark zinc CMZN3 on the LME was up 0.8% at $2,841.50 a metric ton at 1600 GMT, having earlier touched $2,876 a ton, the highest since March 28.

Overall stocks of zinc in LME warehouses stand at 118,225 tons MZNSTX-LOC. Cancelled warrants or metal earmarked for delivery at 50% suggest another 59,900 tons waiting to be loaded out.

But traders say there are doubts about whether much of that zinc will leave LME warehouses as it is mostly stored in Singapore and much of the metal there is in so-called rent sharing deals.

Rent deals are profitable agreements under which LME-registered warehouses share fees or rental income with companies that deliver metal to them.

"It remains unclear if this latest volatile move in stocks is being driven by pure physical demand or as part of market players benefiting from rent deals," said Natalie Scott-Gray, senior metals analyst at StoneX.

"If we do not see a similar quantity of material come back onto the exchange in the next three to four weeks, we can assume that this latest order is to fulfil, at least in part, physical consumption requirements in Europe."

Also in focus are large holdings 0#LME-WHI of zinc warrants - title documents conferring ownership. Further cancellations would add to tightness which has created a CMZN0-3 premium for the LME cash contract over the three-month forward.

Providing a boost for zinc, used to galvanise steel, was China's announcement that construction had begun on what will be the world's largest hydropower dam, on the eastern rim of the Tibetan Plateau, at an estimated cost of at least $170 billion, traders said.

Overall, industrial metals were supported by top consumer China's plans to stabilise growth in the machinery, autos and electrical equipment sectors.

Copper CMCU3 rose 0.9% to $9,862 a ton, aluminium CMAL3 gained 0.6% to a four-week high of $2,644.50, lead CMPB3 added 0.2% to $2,013, tin CMSN3 advanced 1.1% to $33,815 and nickel CMNI3 climbed 1.9% to $15,510 a ton.

Traders said nickel's gains were due to short position covering on expectations of stronger Chinese demand.

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