China aluminum prices up by 4pct due to steady demand and speculation

Reuters reported that China's aluminum prices have risen 4.1% so far this week to hit 15 month high due to steady demand and speculation and this could drive up prices of the metal on the London Metal Exchange.

Traders and analysts said that strong prices are raising worries that Beijing's commodity manager, the State Reserves Bureau will release aluminum stockpiles to ease domestic prices as China aims to fight inflation in the country, the world's top aluminum consumer.

The most active Shanghai aluminum contract ended at CNY 18,360 after touching CNY 18,570 earlier the highest level since April 2010. It closed at CNY 17,640. The front month of Shanghai aluminum which reflects spot prices in China hit CNY 18,650 the highest level since August 2008 before closing at CNY 18,445.

A smelter source said that aluminum prices having risen to this level is a surprise to us. If this extends, it can push up LME prices. Market players had increased trade of Shanghai aluminum contracts this week, pushing up prices quickly in the past three days and stirring fears of a shortage in the spot market.

Mr Jing Chuan chief researcher at Hua Tai Great Wall Futures said that "Aluminum prices rose nearly CNY 1,000 in three days a speed that I have not seen often after 1996. Some players holding short positions on the Shanghai aluminum futures had bought metal in the spot market for the delivery.

Mr Fu Bin an analyst at Jinrui Futures said that large short positions have attracted speculators to bet against the shorts. In the past few days, it's obvious that massive speculative money came into the market for aluminum.

Traders and smelter sources said that demand for aluminum remained strong because of increased capacity for semi finished products which has balanced record production of primary aluminum in the past few months. Higher exports were also boosting demand. Exports of semi finished products rose 47.9% on the year to 1.52 million tonnes in the H1 of 2011.

Traders said that supply of aluminum in the Chinese spot market had been falling in the past two months and now was tight because stocks owners expecting higher prices including merchants and smelters were not keen to sell. But this week's sharp price rise was likely pushed by speculators holding long Shanghai positions as some shorts are expected to buy spot aluminum ingots for futures deliveries.

Trading sources said that some speculators may have started accumulating aluminum in the futures and spot markets in May, gradually driving up prices in the past two months and prompting a few producers to increase hedging for their output. A large trading house is thought to be one of the major forces behind the latest price spike and has been taking metal from the spot market and also from Chinese smelters as payments for imported alumina.