LONDON: Aluminium prices rose to their highest since January on Tuesday as strong factory data, a resurgent auto market and rising Chinese demand fuelled expectations of a tightening market. Benchmark aluminium on the London Metal Exchange (LME) was up 1% at $1,769 a tonne at 1601 GMT after jumping 2.2% on Monday.
The metal used in transport and packaging has risen more than 20% from a low in April as the novel coronavirus outbreak spread globally. Supporting factors are a recovering auto industry and China, where high local prices have sucked hundreds of thousands of tonnes of metal to the country and stockpiles remain low, said Julius Baer analyst Carsten Menke, adding prices were unlikely to rise above $1,900 because idled plants would resume output.
"Any rally is going to be self-defeating because you have so much free capacity in the system just waiting for prices to be right," he said. US, Canadian, Brazilian, German and Chinese data show manufacturing activity and demand for autos is bouncing back fast.
A shift to electric vehicles has created a new and substantial demand stream for aluminium. Analysts at Citi forecast LME aluminium cash prices to be around $1,700 in the fourth quarter, rising to $1,900 in 2021 and $2,000 in 2022.
They said a demand recovery could move the global market from a 2.5 million tonne surplus in 2020 to a 1.7 million tonne deficit by 2023. "Producer cost inflation through rising prices of alumina and energy, as well as a weaker dollar, should help support the aluminium price rally," they added.
China's aluminium imports have surged to their highest in years. Stocks in Shanghai Futures Exchange warehouses, at 221,819 tonnes, are down from more than 500,000 tonnes in April. Inventories in LME-registered warehouses, however, have risen to 1.6 million tonnes from about 970,000 tonnes in March. LME copper was down 0.5% at $6,455 a tonne, zinc rose 0.1% to $2,326, nickel gained 1.3% to $14,120, lead added 0.8% to $1,884.50 and tin was 1.2% down at $17,800.
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