LONDON: Aluminium climbed to a 20-month peak on Tuesday after reports of potential capacity cuts in China while zinc touched a five-week high as funds remained bullish on the sector.
Copper also added to recent gains, but some analysts were wary that demand was weak and the market is vulnerable to a correction. Three-month aluminium on the London Metal Exchange traded up 1 percent at $1,867.50 a tonne in official open outcry activity, having earlier touched $1,883, the highest level since May 2015.
Traders cited a Bloomberg story saying that China is drawing up plans that would halt about 3.3 million tonnes of operational aluminium capacity during the winter in an effort to combat air pollution.
China's top environment watchdog delivered verbal warnings last month to Chalco, the nation's top aluminium producer, for failing to deal with pollution appropriately, state news agency Xinhua had reported.
LME zinc gained 0.9 percent to trade at $2,816 a tonne in official rings, having earlier touched $2,823, the highest since Dec. 15. Copper, meanwhile, climbed 1.6 percent to $5,890 in official trading.
"Copper and zinc prices are artificially higher," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan, citing interest from funds.
"But demand is weak, the physical market is not chasing these gains, they're waiting for lower prices.
The market is at serious risk of a correction lower."
Signals of lacklustre copper demand came on Monday when the International Copper Study Group (ICSG) said that the global world refined copper market flipped to a 48,000 tonnes surplus in October from a 18,000 tonnes deficit a month earlier.
"We believe that there are many signs that the global copper market was no longer undersupplied in 2016 - for the first time in seven years.
We therefore see no justification for the steep rise in the copper price since the end of October," Commerzbank analysts said in a note.
"We believe that the potential for it to correct is growing from week to week."
The Lunar New Year holiday in China, starting Jan. 27, is also expected to subdue metals demand as Chinese factories close, sometimes for two to three weeks.
Lead traded up 0.1 percent at $2,359.50 while nickel , untraded in rings, was bid up 0.8 percent to $9,790 and tin was bid up 0.3 percent to $20,175.
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