Aluminium hits two-month low as inventories and output climb

LONDON: Aluminium prices touched their lowest in two months on Tuesday as inventories and production climbed, raising fears of larger surpluses.

Three-month aluminium on the London Metal Exchange (LME) was down 0.4% at $1,965 a tonne by 1500 GMT after touching $1,945, its weakest since Nov. 16.

"In the short term, you have those inventory rises from both markets, China and ex-China, which is capping the upside of aluminium," said Wenyu Yao, senior commodities strategist at ING Bank.

LME inventories have jumped by 10% over the past two days to 1.41 million tonnes, while stocks in warehouses registered with the Shanghai Futures Exchange have gained 12% over the past month.

The stock gains in China were expected ahead of the Lunar New Year holiday, which kicks off in mid-February, Yao added.

China's aluminium production in 2020 rose 4.9% from the previous year to a record 37.08 million tonnes as smelters cashed in on soaring prices, with December output hitting a record monthly high.

Traders have been expecting LME aluminium prices to stall after they surged 44% from April last year to the highest in more than two years in December.

• LME copper prices added 0.6% to $8,022.50 a tonne, tracking share markets, with global investors awaiting a speech by US Treasury Secretary nominee Janet Yellen, which could set the tone on policy in the world's largest economy.

  "There is an expectation that she will give some sort of endorsement to a market-driven exchange rate, which could fuel the likelihood of further dollar weakness," Alastair Munro, of broker Marex Spectron, said in a note.

• The dollar weakened, making commodities priced in the US currency cheaper for buyers using other currencies.

• News that China reported the worst outbreak of COVID-19 since March 2020 dampened sentiment.

  • LME nickel climbed 1.3% to $18,290 a tonne, lead rose 0.7% to $2,010 and tin fell 0.4% to $21,145.

Zinc gained 0.3% to $2,689.50, erasing losses after hitting $2,667, its lowest since Nov. 17.