LONDON: Aluminium prices rose on Wednesday to their highest in more than two months as expectations of large deficits were reinforced by high power prices, particularly in Europe, and sliding stocks.
Benchmark aluminium on the London Metal Exchange was up 2.3% at $2,905 a tonne at 1705 GMT, having earlier touched $2,938.5, its highest since Oct. 25 and a rise of more than 10% since Nov 5.
“There is no quick, permanent solution to the European power crisis. Even if prices ease, it doesn’t mean risks are dissipating,” said ING analyst Wenyu Yao.
“Aluminium producers in Europe trying to negotiate with power suppliers will find it difficult to get competitive deals for the longer term.”
Power at current prices can account for around 50% of aluminium smelting costs.
POWER: European prompt power prices rose on Wednesday as day-to-day wind power supply in Germany was forecast to halve while demand in France was expected to increase due to lower temperatures.
INVENTORIES: Stocks of aluminium in LME approved warehouses at 926,800 tonnes have dropped more than 50% since the middle of March.
Cancelled warrants - metal earmarked for delivery - at 34% of the total suggest more aluminium will be leaving the LME warehouses over the coming days.
EUROPE: Consumers buying aluminium on the physical market pay the benchmark LME prices plus a premium.
Tightness in the European market can be seen in the duty paid premium at $390 a tonne, up 34% since Dec. 1.
ING’s Yao estimates between 400,000 and 500,000 tonnes of aluminium production capacity in Europe has been shut down.
Europe accounts for around 13% of global aluminium consumption estimated at around 70 million tonnes this year.
CHINA: The aluminium market is also focused on top producer China where coal prices have been driven up by a ban on exports by Indonesia.
China and India, also a major aluminium producer, are major destinations for Indonesian coal.
OTHER METALS: Copper was down 0.7% at $9,695 a tonne, zinc slipped 0.9% at $3,573, lead fell 0.3% to $2,292, tin gained 0.3% to $39,310 and nickel ceded 2.4% to $20,635.