Supply fears keep aluminium near 13-1/2-year highs

LONDON: Aluminium prices held near 13-1/2 year highs on Wednesday as a supply shortfall caused by smelter closures in Europe and China ate further into exchange stockpiles.

Smelters have cut output due to high energy prices and a crackdown on polluting industry in China, where power-hungry aluminium plants use electricity generated using coal.

The roughly 65 million tonne a year market was undersupplied by just over a million tonnes in 2021 and could see a 1.5-1.6 million tonne deficit this year, said independent analyst Robin Bhar.

Benchmark aluminium on the London Metal Exchange (LME) was up 0.6% at $3,202 a tonne at 1118 GMT after reaching $3,236 on Tuesday, the highest since July 2008.

Prices are up around 14% this year after rising 42% in 2021 and are closing in on 2008's record of $3,380.15 a tonne.

"At a time when demand is building, we're not seeing the supply to meet it," said Bhar.

Aluminium prices jump to their highest since 2008

Inventories: Aluminium stocks in LME-registered warehouses have fallen to 761,950 tonnes, the lowest since 2007 and down from almost 2 million tonnes last March.

Inventories in Shanghai Futures Exchange (ShFE) warehouses are down 17.5% this year to 266,906 tonnes.

Spread: Tight supply on the LME drove the premium for cash aluminium over the three-month contract to $40 a tonne, the highest since July 2018, on Tuesday. The premium eased on Wednesday to $31.50.

Energy Prices: Energy prices have surged, hitting smelters for which power typically accounts for around 30-40% of production costs.

Worst hit is Europe, where more than 1 million tonnes of output has been cut, analysts at ANZ say.

Bullish: Goldman Sachs on Tuesday raised its aluminium price forecasts with a new 12-month target of $4,000 per tonne and said it sees prices averaging $3,450 in 2022.

Bearish: However, the median forecasts from a Reuters poll last month were for a deficit of 609,000 tonnes this year and for cash aluminium to average $2,780 a tonne.

Other Metals: LME copper was up 0.1% at $9,788 a tonne, zinc rose 0.3% to $3,604.50, lead climbed 0.3% to $2,211, tin was up 0.1% at $42,955 and nickel added 1% to $22,925.