Aluminum Prices Up as Inventory Falls and Supply Tightens

Signalling corrections in metal prices, Aluminum prices surged on May 20 as Chinese stockpiles plunged and hinted an implicit supply tightening.

The 2.1 percent jump in prices was the largest intraday surge since April 20 on the back of inventory fall on the Shanghai Futures Exchange at 7.6 percent and London Metal Exchange.

At LME, the inventories dropped to 2.56 million metric tons, the lowest since January 2009.

“The Chinese market is still relatively tight from a physical angle,” noted Colin Hamilton, the head of global commodities research, Macquarie Group in London, reports Bloomberg.

Aluminum for delivery gained 0.1 percent to settle at $1,547 a ton at 5:50 p.m. in London, in three months. In China, aluminum demand is soaring. As a result, even though it produces half the world’s output, the export volumes will be less, according to United Co. Rusal, leading aluminum producer.

A report in Reuters said gains in Aluminum prices were due to speculators dropping their bearish positions before the weekend. However, other metals dipped as the dollar rebounded. The dollar is on a high after hints of Fed officials hiking interest rate in June

Says Caroline Bain, senior commodities economist at Capital Economics: “The Fed minutes shook things up a bit, potentially making the case for a June rate hike, which is negative for all commodities.”

Aluminum prices were also helped by a new data that showed owners of 74,425 tons of metal in LME-registered warehouses are preparing to ship the material out. This means less aluminum for buyers and an impending market tightening, traders said.

The dollar index gained further after curbing the metals market as reports surfaced about rising US home resales in April, which was close to three-week high.

The dollar-denominated commodity futures normally drop when greenback strengthens as purchasing becomes expensive for buyers who might be paying with other currencies.

Among other metals, the price of copper was unchanged at $4,578 a ton on the London Metal Exchange. Zinc slightly gained in London, while Nickel, Lead, and Tin dropped.

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