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Aluminum hits five-year high as China supply cuts loom

Thursday, Sep 21, 2017

Aluminum soared to its highest in five years on Wednesday on reports China’s mammoth producer Chinalco was cutting output two months early and would soon pare back stocks of available metal.

Concerns that an environmental crackdown by China’s authorities will create shortages have boosted aluminum prices, the top performer on London Metal Exchange (LME) this year with gains of 28 percent.

Benchmark aluminum on the LME traded 3.2 percent higher at $2,191 per tonne in official trading, its highest since September 2012. The metal was in its third straight session of gains.

“China is making an effort to make efforts to cut back ahead of the winter months,” Natixis analyst Bernard Dahdah.

“Bear in mind that Chinese elections are also coming up and showing how serious they are about pollution is always good before an election,” he said.

CHINALCO: Chinalco, China’s largest state-run aluminum producer, started reducing output in Henan province almost two months before official winter restrictions kicked in.

STOCKS: Aluminum inventories in LME-approved warehouses fell to levels last seen in 2008 at 1.3 million, down 2,725 tonnes from Tuesday.

CHINA OUTPUT: China’s aluminum production last month fell to the lowest since April 2016 at 2.64 million tonnes.

Earlier this year, China launched an aggressive campaign to curb choking smog in its northern regions, mandating a range of output cuts by the steel and aluminum producers. Aluminum makers must cut capacity by more than 30 percent across 28 cities.

COPPER SPREADS: Rising copper stocks helped to push the discount for cash copper over the three-month contract to nearly $50 a tonne. On Monday, it rose above $50 which was its highest since December 2009. This suggests more metal will be delivered over coming days.

COPPER PRICES: LME copper failed to trade in official rings but was bid up 0.4 percent to $6,564.50 tonnes, having made modest gains in the last three sessions.

CHINA LEAD: Lead has been particularly hard hit by environmental inspections with 80 percent of illegal secondary smelters shut down since the second half of last year, according to research group Antaike.

LEAD PREMIUMS: Premiums for lead in China’s bonded zones jumped $10 to $170-$190 amid tightening domestic supply. INSG: The global nickel market tipped into a wider deficit in July as demand from top stainless steel producer China surged, data from the International Nickel Study Group showed.

Nickel jumped 3 percent to $11,470 in official trading rings.

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