METALS-Nickel hits 6-week high as investors see wider deficits

• LME/ShFE arb: http://bit.ly/2wZSAEz

(Recasts, adds details/quote, updates prices, changes dateline)

Nickel prices hit a six-week high on Friday, helped by expectations that market deficits will widen going forward, while copper gained on an upbeat view of demand growth in top consumer China.

The global nickel market swung to a wider deficit of 6,700 tonnes in August from the month before, while nickel production at Brazil's Vale fell 4.3 percent year on year in the last quarter.

Deficit expectations rather than the cost of production are lifting nickel prices, according to Colin Hamilton, head of commodities research at BMO Capital Markets.

"Nickel prices are set by the cost of making nickel pig iron in China and (price) moves like we've seen are probably detaching from that anchor," he said.

Helping copper prices was the receding fear over a slowdown in China's growth. Investors took the view that the reaction to the Chinese central bank chief's warning on Thursday about asset bubbles, was overdone.

"The industrial backdrop is generally pretty good in China," said Hamilton.

China's factory output grew 6.6 percent year-on-year in September, beating expectations, while fixed-asset investment expanded 7.5 percent in January-September, missing forecasts.

NICKEL: Three-month nickel on the London Metal Exchange CMNI3 was up 3.2 percent at $12,110 a tonne by 1016 GMT, after hitting $12,165, its highest since Sept. 8. Nickel has gained almost 4 percent this week, on course for a fourth weekly rise.

SUPPLY: Jinchuan Group , China's top nickel producer, will next year start building a new project in Guangxi that will produce raw materials like nickel and cobalt for electric vehicle (EV) batteries.

COPPER: LME copper CMCU3 rose 1.1 percent to $7,040 a tonne, having rallied at the start of the week above $7,000 a tonne for the first time since September 2014.

TC/RC'S: Aurubis , Europe's biggest copper smelter, will offer its customers 2018 copper cathode premiums of $86 per tonne, unchanged from 2017.

ALUMINA SHORTAGE: Shortages of alumina, the raw material for producing aluminium, may become more severe in the coming months as an environmental crackdown in China is due to shut capacity, forcing smelters to scramble for supplies and pushing up prices.

"Further declines in Chinese aluminium production pushed prices back towards the yearly highs. However, judging by ballooning inventories, much higher private production estimates and raw material supplies, we doubt the official production data," said Julius Baer in a note.

ZINC: Indicating still tight zinc supply, cash zinc last night closed at a premium of $56 a tonne to the three month price CMZN0-3.

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