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

13 Jul, 2022

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

Benchmark aluminium on the London Metal Exchange (LME) was down 0.8% at $2,360 a tonne at 1600 GMT after touching its lowest since May 2021 at $2,352.

“China aluminium production data should be out soon; the market is expecting a rise,” one metals trader said. “Higher US interest rates and dollar are a negative for metals demand.” Primary aluminium production in China has been rising as curbs on power consumption have eased.

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

This and weaker aluminium demand, partly because of coronavirus lockdowns in top consumer China is behind the 40% drop in prices, which hit a record above $4,000 in March.

Another reason behind the sell-off has been that Russian aluminium supplies - about 6% of the global total - have not been disrupted as expected when the war in Ukraine started.

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

Cancelled warrants, or metal earmarked for delivery, stood at 54% of the total, indicating that more aluminium is due to leave the LME system.

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

Three-month zinc slid 0.6% to $3,023 a tonne.

Demand for industrial metals, meanwhile, has been dented by worries about economic and manufacturing slowdown as central banks raise interest rates to rein in soaring inflation.

The US Federal Reserve is expected to raise rates by another 75 basis points this month. Higher US rates have pushed the dollar to almost 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 could undermine demand.

Elsewhere, copper was down 3% at $7,354 a tonne, lead ceded 0.4% to $1,934, tin fell 2.4% to $25,640 and nickel lost 2.3% to $21,325.

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