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LME Aluminum Rebounds from 4.5-year Low

Saturday, Feb 08, 2014

 LONDON--Base metal futures rose on the London Metal Exchange Tuesday, with aluminum carving out significant gains as traders stepped in to buy the metal at reduced prices.

The LME's three-month aluminum contract was up 1.1% at $1,695 a metric ton in morning European trade after hitting a four-and-a-half-year low of $1,671.25 a ton Monday. The LME's flagship three-month copper contract was up 0.2% at $7,055 a ton, snapping a nine-session losing streak.
"The metals are all attempting to find certain support after lengthy declines," said Richard Fu, head of Asian commodities trading at Newedge.
Base metal prices have tumbled in recent weeks, weighed by a slew of disappointing economic data from China and the U.S. -- the world's two biggest base metals consumers. Industrial metals are used in everything from consumer electronics to automobiles, making their prices sensitive to economic growth signals.
"While it is always difficult to call the top or bottom of the market, metals look cheap compared with the cost [of production] or long-term outlook," said Mr. Fu.
Aluminum prices have felt additional pressure from elevated supply, and prices are only likely to recover significantly if the industry sees "sweeping production cuts and shutdowns in the near future," said analysts at Commerzbank Tuesday.
Such cuts are unlikely while physical premiums for aluminum -- the price consumers pay on top of the LME price for swift delivery of the metal -- remain high, however, said the bank.
"At $2,000 per ton, roughly half of all aluminum smelters worldwide are unprofitable. They are kept alive, artificially as it were, by the premiums," said Commerzbank. "If the physical premiums, which we regard as excessively high, were to fall somewhat in the coming months without any corresponding rise in the LME aluminum price, the problems faced by producers would be even greater."
In January, U.S. aluminum premiums rose to more than $440 a ton, or the equivalent to 25% of the LME aluminum price, according to analysts.
In other base metals Tuesday, zinc was up 0.3% at $1,962.25 a ton, nickel was up 0.7% at $13,981 a ton, lead was 1.3% higher at $2,110.75 a ton and tin was up 0.7% at $22,275 a ton.

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