Capacity cut talk in China drives aluminum prices to highest since 2014

LONDON — Aluminum prices climbed to their highest in more than two years on Wednesday as expectations of capacity cuts in top producer China, where the government is waging a war on pollution, were reinforced by a lower dollar.

Benchmark aluminum on the London Metal Exchange ended down 0.10% at $2,027.50 on profit taking. Earlier it touched $2,043, its highest since November 2014, a gain of around 20% this year.

“Aluminum’s rise is related to capacity cuts and tighter environmental regulations. Shandong province yesterday announced capacity cuts that were larger than expected,” said Xiao Fu, head of commodity strategy at Bank of China International.

“It’s related to supply side reform and there is a broad-based spillover into other metals. We are seeing long positions being added in copper and overall market.”

China’s Shandong province has ordered 3.21 million tons of smelting capacity to be shut. In a statement the Shandong Development and Reform Commission said checks had shown areas of the eastern province had 3.21 million tons of illegal capacity built without permits.

The shutdowns come as China’s Ministry of Environmental Protection said it was embarking on its fourth round of environmental inspections across eight provinces and regions, including Shandong.

China’s aluminum output hit a record high of 97,700 tons a day in June. That was equivalent to an annualized run rate of 35.70 million tons and represented 56.50% of global output, also a fresh high.

Industrial metals overall were boosted by a lower US currency, which makes dollar-denominated commodities cheaper for nonUS firms; a relationship used by funds which trade using buy and sell signals generated by numerical models.

The dollar came under pressure after North Korea said it is examining plans for a missile strike on the US Pacific territory of Guam, just hours after US President Donald Trump told the North that any threat to the United States would be met with “fire and fury.”

Copper ended down 0.40% to $6,455 as funds took profits. Earlier it touched $6,515, its highest since December 2014. Expectations of stronger demand from top consumer China have seen copper rise around 17% this year.

Research firm Antaike said lead and zinc mines and smelters in Sichuan had not been affected by Tuesday’s earthquake.

Among other industrial metals, zinc rose 0.20% to $2,931.50, lead slid 1.40% to $2,350, tin ended little changed at $20,205 and nickel added 1.10% to $10,750 a ton. —