Aluminum hits five-year high as China supply cuts loom

22 September 2017

Aluminum soared to its highest in five years on Wednesday on reports that mammoth Chinese producer Chinalco was cutting output two months early and would soon pare back stocks of available metal.

Concerns that an environmental crackdown by China’s authorities will create shortages have served to boost aluminum prices and the metal has been the top performer on the London Metal Exchange (LME) this year with gains of 28 percent.

Benchmark aluminum on the LME closed 2.5 percent up at $2,177 a tonne after touching $2,194.50, its highest since September 2012.

“China is making an effort to cut back ahead of the winter months,” Natixis analyst Bernard Dahdah. “Bear in mind that Chinese elections are also coming up and showing how serious they are about pollution is always good before an election.”

CHINALCO: China’s largest state-run aluminum producer Chinalco began reducing output in Henan province almost two months before official winter restrictions kicked in.

STOCKS: Aluminum inventories in LME-approved warehouses fell to levels last seen in 2008 at 1.3 million tonnes, down 2,725 tonnes from Tuesday.

CHINA OUTPUT: China’s aluminum production last month fell to its lowest since April 2016 at 2.64 million tonnes.

China this year launched an aggressive campaign to curb smog in its northern regions, mandating a range of output cuts by steel and aluminum producers. Aluminum manufacturers must cut capacity by more than 30 percent across 28 cities.

COPPER: LME copper finished 0.2 percent down at $6,527 a tonne, ending three days of modest gains.

SUPPLY: The global refined copper market showed a 70,000 tonne deficit in June, compared with a 50,000 tonne deficit in May, the International Copper Study Group (ICSG) said.

SPREADS: Rising copper stocks helped to push the discount for cash copper over the three-month contract to nearly $50 a tonne. On Monday it rose above $50 to mark its highest price since December 2009. This suggests more metal will be delivered over the coming days.

CHINA LEAD: Environmental inspections have resulted in 80 percent of illegal secondary lead smelters being shut down since the second half of last year, according to research group Antaike.

LEAD PREMIUMS: Premiums for lead in China’s bonded zones jumped $10 to $170-$190 amid tightening domestic supply.

NICKEL: The global nickel market tipped into a wider deficit in July after a surge in demand from top stainless steel producer China, data from the International Nickel Study Group showed. Nickel finished 2.2 percent up at $11,380.

PRICES: Lead closed with a 1.7 percent gain at $2,460 a tonne. Zinc was 0.9 percent up at $3,133 while tin closed 0.1 percent down at $20,625.