Aluminium prices held near six-week lows on Thursday as the market focused on rising supplies and exports from top producer China, lower output costs and higher inventories.
Benchmark aluminium on the London Metal Exchange was up 0.5 percent at $1,877 a tonne by 1002 GMT from an earlier $1,866.50, near Wednesday’s low since May 11 of $1,866.
“China is producing and exporting more aluminium. Rising stocks do not signal a tight market,” said Julius Baer analyst Carsten Menke. “Production costs have come down because coal prices are lower.”
EXPORTS: China’s aluminium exports have risen in recent months. In May the country exported 460,000 tonnes of unwrought aluminium and aluminium products, up from April’s 430,000 tonnes.
OUTPUT: Data from the International Aluminium Institute showed China’s aluminium production last year accounted for 55 percent of the global total, estimated at nearly 59 million tonnes. Its output has been rising since March.
LME INVENTORIES: Aluminium stocks in LME approved warehouses are up around 13,000 tonnes this week to above 1.43 million tonnes.
SHANGHAI INVENTORIES: Stocks in warehouses monitored by the Shanghai Futures Exchange at 433,110 tonnes are more than four times the levels seen in January.
POWER: Electricity, generated by burning coal, accounts for 30 to 40 percent of aluminium production costs in China. Lower coal prices cut output costs and boost margins.
HIGH PRICES: Aluminium prices hit $1,981 in March, their highest since December 2014 on expectations of falling supplies from China, where an environmental crackdown could mean output cuts during the winter months starting in November.
POLLUTION: The crackdown on pollution is part of a broader move to reduce overcapacity, boost revenues and help improve banks’ balance sheets under pressure from non-performing loans, said Goldman Sachs analyst Max Layton.
BANKS: “Steel and coal output cuts were about bank balance sheets in the first instance, they also reduced pollution. These cuts were put in place early last year when non-performing loans were spiking,” Layton said. “China’s aluminium output cuts will move the needle, you are looking at a balanced Chinese market over the next couple of years and lower export growth.”
DOLLAR: Industrial metals were supported by a softer U.S. currency, which makes dollar-denominated commodities cheaper for non-U.S. firms, which could potentially boost demand.
ZINC: Zinc was up 1.9 percent at $2,689 a tonne. Earlier it touched $2,703.5, its highest since April 7, as the market focused on falling stocks in LME warehouses, which at 304,000 tonnes are down nearly 30 percent since January.
PRICES: Copper was up 0.2 percent at $5,755, lead gained 0.4 percent to $2,194, tin added 0.4 percent to $19,585 and nickel was down 0.3 percent to $8,980 a tonne.