Aluminium slips to five-week low as inventories swell

LONDON: Aluminium prices fell to a five-week low on Wednesday, pressured by weak demand in China and a rapid build-up of inventories in exchange warehouses.

Benchmark aluminium on the London Metal Exchange (LME) was up 0.1% at $2,411 a tonne by 1209 GMT after touching $2,387.50 for its lowest since Jan. 9.

Industrial metals surged in January, with aluminium reaching a seven-month high of $2,679.50 as speculators bet that growth in top metals consumer China would rebound from last year’s slump.

Demand, however, remains lacklustre and metal is flowing into storage.

Aluminium stocks in LME-registered warehouses have risen to 602,150 tonnes from 375,950 tonnes in mid-January. Inventories in Shanghai Futures Exchange warehouses are at 268,984 tonnes, against 95,881 tonnes on Dec. 30.

Meanwhile, a wave of speculative investment has slowed, with $2.3 billion leaving base metals markets last week, JPMorgan analysts said.

But inventories are still well below the long-term average, said WisdomTree analyst Nitesh Shah.

Aluminium hits 5-week low as exchange inventories surge

Aluminium’s fundamentals remain stong and China’s demand for aluminium should grow this year while its production of the metal shrinks, Shah said.

“There’s a lot of potential for a very strong comeback (for prices),” he added.

Meanwhile, fears that higher interest rates will be needed to curb stickier than expected inflation continue to pressure stock markets and boosted the dollar, making dollar-priced metals costlier for many buyers.

Analysts at Citi lowered their copper price forecast for the next three months to $8,500 a tonne from $10,000. LME copper was down 0.8% at $8,871.50 on Wednesday.

Citi said that its economists believe that U.S. inflation will remain firmer than anticipated, necessitating three further increases to interest rates, each by 25 basis points.

“China growth could also disappoint amid continued property sector struggles and weak consumer confidence,” the bank added.

Benchmark zinc was down 1.1% at $3,048.50 a tonne, nickel fell 0.9% to $26,235, lead slipped 1% to $2,074 and tin was down 1.7% at $26,365.