China ramp-up pushes aluminium prices to 14-month lows

LONDON: Aluminium prices tumbled to their lowest in more than a year on Tuesday on expectations of rising supply from top producer China where smelters have been ramping up output.

Benchmark aluminium on the London Metal Exchange (LME) was up 0.4% to $2,388 a tonne. Prices of the metal used widely in the power, construction and packaging industries earlier hit $2,352, the lowest since May 2021.

“China aluminium production data should be out soon, the market is expecting a rise,” a metals trader said. “Higher US interest rates and dollar are a negative for metals demand.”

Primary aluminium production in China has been rising alongside easing curbs on power consumption.

It hit a record 3.42 million tonnes in May, up 3.1% from the same month a year earlier and compares with 3.36 million tones in April.

This combined with weaker aluminium demand, partly due to coronavirus lockdowns in top consumer China, has led some analysts to pare back their forecasts for large surpluses this year.

However, supporting aluminium on the LME market are stocks in LME registered warehouses at 340,375 tonnes, the lowest since 2002.

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Cancelled warrants – metal earmarked for delivery – at 54% of the total indicate more aluminium is due to leave the LME system.

Concern about the availability of zinc on the LME market because of low stocks has again pushed up the premium for the cash over the three-month contract to around $90 per tonne from levels near $20 at end-June.

Three-month zinc was up 0.1% at $3,046 a tonne.

Overall, worries about an economic and manufacturing slowdown as central banks raise interest rates to rein in soaring inflation have hit demand for industrial metals.

The US Federal Reserve is expected to hike rates another 75 basis points later this month. Higher US rates have pushed the dollar to near 20-year highs against a basket of currencies.

A rising US currency makes dollar-denominated commodities more expensive for consumers operating outside the United States, which undermines demand.

Elsewhere in the base metals complex, copper was down 1.5% at $7,474 a tonne, lead slipped 1% to $1,923, tin fell 3% to $25,480 and nickel lost 1.3% to $21,555.