China supply fears triggers aluminium buying spree

Aluminium jumped to a three-week high on Thursday as investors piled into the metal on expectations of supply shortfalls from China, while tin hit a record high.

Copper, taking its lead from aluminium, also rose more than 2 percent to $8,305, but analysts said an absence of Chinese buyers would cap prices.

Aluminium for delivery in three months on the London Metal Exchange touched $3,027 a tonne, the highest since April 24 and was trading around $3,020 a tonne at 1423 GMT, up from $2,938 a tonne at the close on Wednesday.

Analysts said this week's earthquake in China's Sichuan province and the disruption to hydro power supplies and possibly aluminium output had triggered the latest spurt of buying.

"There's quite strong investor interest in aluminium on the basis China might be about to suffer severe power shortages which could drive aluminium smelters offline," said John Kemp, an analyst at RBS Sempra Metals.

These worries come on top of the usual worries about power shortages during the summer season in China, when the use of air conditioning rises.

Electricity accounts for about one-third of the costs -- estimated on average around $2,400 a tonne -- of making aluminium.

China is the world's largest aluminium producer with an annualised capacity of around 12.5 million tonnes.

Analysts say aluminium output cuts could mean the country, also the world's largest consumer, could be looking for material on the world market to feed growing demand from the power, transport and packaging industries.

ABSENT BUYERS

Tin touched an all-time high of $25,500 a tonne and was last trading at $25,400 a tonne, compared with Wednesday's last bid at $25,150.

The metal is up nearly 60 percent since the beginning of this year on worries about supplies from top producers China and Indonesia and low stocks in LME warehouses, which at around 7,700 tonnes, are the lowest since September 2005.

Copper rose to $8,280 a tonne from $8,120 on Wednesday. Traders said the metal used in power and construction had come under some pressure since stocks have started to rise.

Stocks in LME warehouses stand at just under 121,000 tonnes from below 110,000 earlier this month.

"We still think copper is going to drift due to a lack of Chinese purchasing," said analyst Max Layton at Macquarie Bank.

Copper hit a record high of $8,880 a tonne on April 17 as the market fretted about miners' strikes in Chile and Peru.

Zinc rose to $2,312 from $2,285 on Wednesday. The metal used to galvanise steel has been buoyed by news of supply disruptions in China after the earthquake.

Local governments in the southern part of Gansu and Shaanxi have ordered zinc smelters to close because of fear of aftershocks and to carry out safety inspections.

"We think zinc losses will be between 20,000 and 30,000 tonnes," Macquarie Bank's Layton said.

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