LONDON: Aluminium held near two-month highs on Thursday after rising more than 5% in the last two days as surging energy prices raise concerns of higher production costs and smelter shutdowns.
Prices also drew support from revived risk appetite across markets as investors hope the Omicron coronavirus variant will have less economic impact than feared.
Benchmark aluminium on the London Metal Exchange (LME) was up 0.2% at $2,829 a tonne in official trading, having reached $2,849 on Wednesday, the highest since Oct. 26.
Prices are up more than 40% this year.
"The market is pricing in the risk premium stemming from the European power market, where we have already seen some aluminium supply losses," ING analyst Wenyu Yao said.
European power prices hit record highs this week.
Bloomberg reported on Wednesday that Europe's largest aluminium smelter, in Dunkerque, France, had halted 3% of its production capacity.
Making aluminium requires huge amounts of electricity. Smelters typically have long-term power supply contracts. But for any buying at current prices, it makes "no sense to continue producing," Yao said.
OUTLOOK: Aluminium prices are likely to outperform other industrial metals next year, analysts said.
INVENTORIES: On-warrant aluminium stocks in LME-registered warehouses have fallen from 861,600 tonnes on Dec. 14 to 731,500 tonnes, suggesting tight supply.
INDONESIA: A unit of Indonesian coal company PT Adaro Energy said it plans to build a $728 million aluminium smelter on Borneo island.
OMICRON: Two vaccine makers said their shots protect against Omicron and UK data suggested it may cause proportionally fewer hospitalisations than the Delta variant.
LAS BAMBAS: Peruvian protesters will clear the route to the Las Bambas copper mine until at least Dec. 30, but it is uncertain whether operations will restart.
COPPER: LME copper was down 0.3% at $9,580.50 a tonne. Copper is up around 20% this year but higher supplies and softer demand are expected to cool prices in 2022.
OTHER METALS: Zinc was down 0.6% at $3,510 a tonne, nickel rose 0.5% to $20,040, lead fell 1.3% to $2,290 and tin was up 0.2% at $38,800.