Aluminium prices soar due to deeper cuts in capacity by China

PUBLISHED : Wednesday, 09 August, 2017, 1:27am
UPDATED : Wednesday, 09 August, 2017, 4:54am

Aluminium cemented its spot as the best commodity this year as prices jumped to over US$2,000 a tonnes for the first time since 2014.

Prices have rallied as China ramps up efforts to curtail illegal or polluting capacity. The metal added 2.2 per cent to US$2,008 late on Tuesday in London, bringing gains for the year to about 19 per cent, the biggest rally among 22 raw materials on the Bloomberg Commodity Index.

“It does feel like China’s supply-side reform is deepening, and aluminium is definitely one of our favourite metals,” Xiao Fu, head of global commodities strategy at BOCI Global Commodities UK, said by phone.

“It’s not just about supply,” she added. “There’s a significant shift in demand taking place as well as China diversifies and upgrades its industry. That’s creating demand for aluminium in lightweight vehicles, and the aerospace industry is looking very healthy in the longer term as well.”

China’s Shandong province, the top aluminium producing hub, called for the closure of 3.21 million tonnes a year of illegal aluminum capacity by end of July, according to a statement on Shandong NDRC website dated July 24. The cuts are deeper than expected, Citigroup analyst Jack Shang said in an emailed note.

“This confirms our thesis that the clampdown on unlicensed capacity will be strictly enforced,” he wrote. “We see more upside risks on aluminium prices in the coming quarters.”

The global aluminium market may flip to a significant deficit, according to a report from Wood Mackenzie Ltd. A quarter of capacity in Shandong was unqualified last year, WoodMac said, citing government data. This year’s figure is 3.2 million tonnes a year, or 3 million tonnes at current operating rates, and if all that gets shut, it would represent 9 per cent of the nation’s total production for 2017, it said.