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METALS-Zinc hardest hit as metals retreat on fears of virus spread

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* Zinc falls to lowest since June 2016
* Nickel sinks to seven-month low
* Copper, aluminium at weakest in about two weeks
* Aluminium has biggest short position on LME -broker (Updates with closing prices) By Eric Onstad LONDON, Feb 24 (Reuters) - Zinc hit its lowest level since June 2016 on Monday and other industrial metals prices also slumped on fears the spread of the coronavirus outside China will further hit global growth and metals demand. Sharp rises in new cases reported in Iran, Italy and South Korea triggered steep falls in Asian shares and Wall Street stock futures. "It's a wave of uncertainty back in financial markets, which is pulling prices lower today. It's a clear risk-off move," said analyst Carsten Menke at Julius Baer in Zurich. "With the news over the weekend, it seems the financial markets are struggling again how to properly price in the economic implications of this virus. I think we need more time until we figure out how to do this." Three-month zinc was the hardest hit on the London Metal Exchange (LME), sliding 3.3% to $2,046 a tonne in final open-outcry trading, its weakest level since late June 2016.

* ZINC STOCKS: Rising supply also weighed on zinc prices with inventories surging recently. LME levels have jumped 52% over the past three weeks and those in warehouses tracked by the Shanghai Futures Exchange hit a near two-year high of 143,164 tonnes on Friday. "Inventories are likely to rise further while supply chains remain disrupted and some manufacturers have still not resumed production," Commerzbank said in a note, referring to copper and aluminium stocks as well.

* ZINC SPREAD: The discount of LME cash zinc to the three-month contract rose to $19 a tonne, the highest since September 2018 and up from a premium of $16.75 at the end of January. This indicates rising supplies in the LME system.
* ALUMINIUM SHORT: The net speculative short position for aluminium is the largest on the LME, expanding to 16% of open interest by last Thursday, according to estimates from Marex Spectron. This compares with the year-to-date peak of 27% of open interest on Feb. 4, the broker added in a note.

LME aluminium fell 0.9% to close at $1,699, the lowest since Feb. 5.
* ALUMINIUM COLUMN: The outbreak of the deadly coronavirus could not have come at a worse time for the aluminium market, says columnist Andy Home.
* NICKEL: "Stainless steel mills have started to reduce production due to transportation bottlenecks for raw materials and mounting inventory pressure," Citi said in a note.

Stainless steel is the biggest end user of nickel.
* PRICES: LME copper shed 1.3% to finish at $5,689 a tonne after touching a two-week low of $5,671.50 while nickel slipped 0.8% to $12,430, the weakest since July last year. Lead dropped 0.6% to $1,820 and tin fell 0.5% to $16,550.
* For the top stories in metals and other news, click or <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ LME, ShFE Zinc Stocks Surge ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Eric Onstad; editing by Jason Neely and David Evans)

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