Aluminum holds firm on worries over supply

LONDON — Aluminum held firm on Monday near the 28-month high seen last week on expectations of a tighter market, but rising prices are likely to mean producers restart capacity and fill any gap between supply and demand.

Benchmark aluminum on the London Metal Exchange (LME) ended down 0.50% at $ 1,952 a ton. Last week the metal used widely in transport and packaging rose to $1,981, its highest since December 2014.

“We’ve got the broader rally in commodities, which has been playing out for a while now. Specifically for aluminum there is talk about capacity cuts in China because of environmental concerns,” said Bernstein analyst Paul Gait. “The rally may run for a little longer, but historically we’ve seen as the price goes up, profitability rises and so does supply.”

China early last month ordered steel and aluminum producers in 28 cities to slash output during the winter months in a bid to curb noxious smog. China is the world’s largest aluminum producer.

Focus on falling stocks of aluminum in LME approved warehouses, which at nearly 1.9 million tons are down nearly 20% since mid-January. Canceled warrants — metal earmarked for delivery — at 46% are also a concern for those wanting to trade on the LME

“Aluminum looks very strong on the charts, but its advance is largely predicated on Chinese cuts due for later this year which may or may not materialize,” INTL FCStone analyst Edward Meir said in a note.

Trading volumes thin overall due to Chinese holidays on Monday and Tuesday.

Some pressure on base metals after data showed activity at China’s factories expanded for a ninth straight month in March but at a softer pace as new export orders slowed. That has raised questions about whether a recent pickup in global demand is losing steam.

ISM US manufacturing activity index at 57.20 in March compared with a consensus at 57. The employment index rose to its highest since June 2011, boosting the US currency and making dollar-denominated metals more expensive for non-US firms.

Among other industrial metals, copper ended down 1.40% at $ 5,753 a ton, zinc fell 2.20% to $2,708, lead lost 2.30% to $2,287, tin lost 0.60% to $ 20,050 and nickel slipped 1.80% to $9,850. —