METALS-Copper, zinc and nickel rebound on supply concerns

*

Freeport

says could seek damages in Grasberg dispute * Officials at

Chile

mine put conditions on union meeting *

LME

on-warrant zinc inventories slide to lowest since 2009 (Updates with closing prices) By

Eric Onstad

LONDON, Feb 20 (

Reuters

) - The price of copper bounced back above $6,000 a tonne on Monday as a dispute affecting production at the world's second-biggest copper mine worsened, while zinc was boosted by a drop in inventories. Supply issues dominated the base metals market, with nickel also gaining ground to reach a two-month high as the market tracked the latest plans by the

Philippines

to close mines on environmental grounds. In copper, U.S. mining giant

Freeport-McMoRan Inc

said on Monday that it could take the Indonesian government to arbitration and seek damages over a contractual dispute that has halted operations at its huge Grasberg mine. "From a fundamental perspective, it really is supply that's supporting prices, because we're not very clear on demand at the moment given the delays to Chinese data," said

Caroline Bain

, chief commodities economist at

Capital Economics

. Three-month copper on the

London Metal Exchange

closed 1.9 percent higher at $6,070 a tonne, recovering from losses on Friday. Further tightening supplies is a strike at Chile's

Escondida

copper mine, the world's biggest, which has extended into a second week. Both Grasberg and Escondida declared force majeure last week. "We expect the copper market to move into deficit in 2017 for the first time in six years," Citi said in a report, adding that copper would hit peaks close to $7,000 before year-end. Representatives of Escondida, controlled by

BHP Billiton

, plan to attend talks with striking workers on Monday as long as the union does not interfere with a shift change for non-union employees.

LME zinc

climbed 2.6 percent to end open outcry trading at $2,884 after LME data showed on-warrant inventories -- those not earmarked for shipment from warehouses and therefore available to investors -- slid 11 percent to 258,050 tonnes, the lowest since January 2009. Zinc has gained 10 percent this year on concerns that the closure and suspensions of big mines will create shortages. Nickel extended recent gains, finishing up 0.9 percent at $11,150, the highest since Dec. 19. The Philippines' environment minister said on Monday that she stands by her decision to shut more than half the country's operating mines ahead of a meeting to review the move.

Aluminium

rose 1.1 percent to end at $1,900, but prices may be pressured in the near term,

Natasha Kaneva

at

JP Morgan

said in a note. "Chinese inventories of aluminium look set to continue to increase over the coming weeks as physical fundamentals in China remain slack." Lead gained 2.6 percent to close at $2,310 and tin rose 0.9 percent to $19,900. PRICES Three month LME copper Most active ShFE copper Three month LME aluminium Most active ShFE aluminium Three month LME zinc Most active ShFE zinc Three month LME lead Most active ShFE lead Three month LME nickel Most active ShFE nickel Three month LME tin Most active ShFE tin (Additional reporting by

Melanie Burton

in Melbourne; Editing by Alexander Smith, Greg Mahlich)
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