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METALS-Copper hits 2-week high as trade war fears ease, dollar slips

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* LME copper cancelled warrants at 50 percent of total
* Discount for cash over 3-month copper narrows further (Adds official prices) By Pratima Desai LONDON, Aug 28 (Reuters) - Copper prices climbed to two-week highs on Tuesday as the U.S.-Mexico trade deal raised hopes for an agreement between the United States and China and as the dollar slipped. Benchmark copper on the London Metal Exchange was up 0.3 percent at $6,125 a tonne in official trading rings, having touched a session high of $6,160. It is up nearly six percent since crashing to a 14-month low of $5,773 a tonne on Aug. 15.

"The agreement with Mexico is part of it, though there is no fundamental link between U.S.-Mexico negotiations and industrial metals, and the dollar is softer again," said Julius Baer analyst Carsten Menke. "Striking a deal with China will be much more difficult."

MEXICO: The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact. DOLLAR: The lower U.S. currency makes dollar-denominated metals cheaper for non-U.S. firms, which potentially should boost demand. CHINA: China is the world's largest copper consumer, accounting for nearly half of global demand at around 24 million tonnes. Ample supplies and worries about Chinese demand are why funds have short positions or bets on lower prices. "Risk factors like the possibility of strikes at copper mines in Chile have been averted," Menke said. COPPER SHORTS: "The copper net speculative short position climbed week-on-week to 23 percent of open interest or 38,000 lots," Marex Spectron analysts said in a note.

"This is still lighter than the recent peak short of 30 percent of open interest registered on the 19th July, which goes back to January 2016 levels." STOCKS: Cancelled warrants or metal earmarked for delivery in warehouses registered with the LME have surged to a one-year high at 132,200 tonnes, nearly 50 percent of the total at 268,175 tonnes. Cancelled warrants on Aug. 16 were below 25,000 tonnes. SHFE ARBITRAGE: Traders say the cancelled metal is heading for China as prices in Shanghai Futures Exchange at around $7,150 a tonne are much higher than on the LME and the gap is wide enough to cover shipping, taxes and make a profit. SPREADS: Worries about shortages on the LME market have seen the discount for the cash over the three-month contract narrow to below $14 a tonne from $42 a tonne on Aug. 15. PRICES: Aluminium was up 0.8 percent at $2,112, zinc was flat at $2,532, lead was bid at a steady
$2,085, tin added 0.6 percent to $19,100 and nickel added 0.9 percent to $13,540.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Top base and precious metals analysis - GFMS ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Pratima Desai; editing by Susan Fenton and Kirsten Donovan)

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