Aluminium hits highest in nearly 20 months on speculative buying

LONDON: Aluminium prices hit their highest in nearly 20 months on Friday as speculators pushed prices higher due to continued optimism over a COVID-19 vaccine and strong demand in China.

Three-month aluminium on the London Metal Exchange was up 0.2% at $1,934.50 a tonne by 1115 GMT after touching $1,941, the strongest since March 21, 2019.

LME aluminium has rebounded 32% since March despite forecasts of huge surpluses - analysts polled by Reuters last month pencilled in 2 million tonnes of excess supply this year.

Aluminium on the Shanghai Futures Exchange closed 1.8% higher at 15,530 yuan a tonne, having hit a three-year high of 15,565 yuan a tonne.

Prices have been lifted not only by optimism over a vaccine boosting a recovery in the global economy, but strong consumption of aluminium in China as the country unleashed heavy stimulus spending.

Analysts say some signals have been misleading, however, such as China flipping from a net exporter this year into importing 1.99 million tonnes, up 381% year-on-year.

"The market is taking China moving to be a net importer very positively, even though it is only driven by price arbitrage. The more metal that is sucked up by China, less the arbitrage will continue," said analyst Carsten Menke at Julius Baer in Zurich.

"This means that LME prices have to come down eventually, not a big crash, but I see about 10% downside."

Another factor supporting aluminium prices is that large amounts of the surplus are hidden in off-exchange warehouses in financing deals.

Chilean state-owned Codelco, the world's largest copper producer, said it would continue to dig another year at its century-old open cast Chuquicamata mine, which has had good yields.

LME copper rose 0.5% to $6,965 a tonne.

"The downside risk for copper is macro news, such as the COVID-19 uncertainty in Europe or America and how the new US president will handle the trade issue with China," said China-based copper analyst He Tianyu of CRU Group.

LME nickel fell 0.7% to $15,830 a tonne, zinc dipped 0.04% to $2,625, lead climbed 0.7% to $1,912.50 and tin rose 0.4% to $18,380.