Prospect of slower supply growth helps aluminum to three- week peak

LONDON — Aluminum prices touched a three-week peak on Tuesday as the prospect of slower supply growth from top producer China prompted investors to buy, but the likelihood of a surplus next year capped gains.

Benchmark aluminum on the London Metal Exchange (LME) closed up 1.20% at $2,099 a ton after touching its highest since Nov. 29. It has risen more than 20% so far this year on expectations of a tighter market.

“China has this year taken out 8% of aluminum capacity. It looks highly unlikely this capacity will be allowed to restart in 2018,” said CRU Group analyst Eoin Dinsmore. “We expect Chinese aluminum production growth at 5% next year and the year after, down on what we’ve seen in recent years… But China will continue to produce more than it consumes next year.”

Data from the International Aluminium Institute showed China produced 16.70 million tons in the first half of 2017, a rise of one percent from the second half of last year. That compares with a rise of 10% in the second half of last year from the first half.

China last year accounted for 55% of global output estimated at nearly 59 million tons against 11% of 25 million tons at the turn of the millennium.

Aluminum stocks in warehouses monitored by the Shanghai Futures Exchange at a record 736,389 tons suggest surpluses, analysts say.

China’s war on pollution has involved clamping down on unauthorized aluminum capacity and carrying out inspections to ensure facilities meet the required standards.

“Bears maintain the cuts the Chinese have been putting through are going to be more than offset by new production,” INTL FCStone analyst Edward Meir said in a note.

“Bulls argue the cuts will not only stick, but will likely expand as well as the government maintains its pollution fight. We think there is a good chance the government could move again, especially if it sees no meaningful decline in overall production levels — or pollution readings.”

Lead ended down 0.40% at $ 2,552. It touched $ 2,567 on Monday, its highest since Oct. 16, boosted by expectations of strong demand from auto battery makers over the winter. A large position holding 50-80% of lead warrants and short term contracts is fueling worries about shortages on the LME market.

The premium for the cash over the three-month contract rose to $24 a ton at the close on Monday before falling back to $6.75. Copper finished up 0.50% at $6,942 a ton, zinc closed 0.20% higher at $3,201, tin ended flat at $19,355 and nickel fell 0.60% to $11,755. —