Aluminum hits two-week high as funds cut short positions

25 July 2018

Aluminum hit a two-week high on Tuesday as funds cut bets on lower prices placed in anticipation of sanctions on Rusal being lifted, with the market also factoring in an expected drop in supplies from China.

Benchmark aluminum ended up 0.7 percent at $2,084.5 a ton after climbing as high as $2,114, its strongest since July 10.

U.S. Treasury Secretary Steven Mnuchin said on Friday the objective was “not to put Rusal out of business” and the government was open to removing the Russian aluminum producer from a U.S. sanctions list.

“Some of it is to do with the Rusal situation, but fundamentals are also healthy. Supply and demand is better balanced after decades of oversupply, chiefly from China,” said Societe Generale analyst Robin Bhar.

“China is cutting illegal capacity, slowing capacity growth, and there will probably be the winter capacity cuts again between November and March to reduce pollution.”

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SUPPLY: China accounts for more than 55 percent of global aluminum supplies estimated this year at about 65 million tonnes.

A recent Reuters survey showed that analysts on average expect the aluminum market to be in a deficit of 599,000 tonnes this year and 570,000 tonnes in 2019.

CHINA: “There could be about 1.9 million tonnes of smelting capacity coming online in the second half of 2018, but we expect capacity expansion will be delayed given ongoing weakness in smelter margins,” Citi analysts said in a note.

“China will continue to limit new capacity growth in the future by granting quotas to new projects, mostly in hydropower-intensive provinces such as Guangxi and Guizhou, or capacity swaps by closing existing plants.”

DEMAND: Consumption of aluminum, used widely in the transport and packaging industries, is expected grow by about 5 percent this year and next. Analysts expect China’s demand growth to outpace supply growth this year and next.

COSTS: Analysts also say that prices will have to hold at current levels or rise because of rising costs of production, including power and raw materials bauxite and alumina.

DOLLAR: Industrial metals overall were boosted by a lower U.S. currency, which when it falls makes dollar-denominated commodities cheaper for holders of other currencies, potentially increasing demand. [FRX/]

ESCONDIDA: Traders said copper was helped by uncertainty about supplies from Chile’s Escondida, the world’s largest copper mine, where negotiations between workers and management over a new contract were frozen.

COPPER: The copper price closed up 2.7 percent at $6,295 from an earlier $6,328, matching the high on July 11.

PRICES: Zinc gained 2.4 percent to $2,616, lead rose 1.3 percent to $2,161, tin added 1.2 percent to $19,675 and nickel was up 1.5 percent at $13,600 a ton.