Aluminium prices climbed to more than five-week highs on Thursday as worries about supply from top producer China escalated on market talk that local smelters would be forced to shut capacity.
Benchmark aluminium on the London Metal Exchange ended up 0.8 percent at $1,944 a tonne from an earlier $1,948, its highest since May 30.
“There are ongoing investigations into Chinese aluminium production capacity, which hasn’t been approved by central government,” said Julius Baer analyst Carsten Menke.
“A lot of it is to do with pollution. Aluminium needs a lot of energy, which in China comes from coal-fired plants. They want to get a grip on the supply side.”
OUTPUT: China’s aluminium production last year accounted for 55 percent of the global total, estimated at nearly 59 million tonnes, according to International Aluminium Institute.
POLLUTION: Earlier this year, China ordered steel and aluminium producers in 28 cities to slash output during winter as Beijing intensifies its war on smog.
POWER: Electricity, generated by burning coal, accounts for 30 to 40 percent of aluminium production costs in China.
CAPACITY: “Further to environmental closures, China’s government is also investigating illegal smelting capacity,” Bank of America Merrill Lynch analysts said in a note.
TIMELINE: “Although authorities have given some guidance on the timeline of the inspections and the potential closure of illegal capacity there is considerable uncertainty over the tonnages affected, with estimates ranging between 3 and 6 million tonnes,” BoA Merrill Lynch said.
TECHNICALS: Traders say aluminium’s upside faces resistance around $1,970, an area of congestion, with strong support at $1,910 where the 100-day and 55-day moving averages meet.
PHILIPPINES: Nickel came under pressure after the new environment minister lifted a restriction on issuing environmental permits to projects, including mine exploration and development, reversing a previous order by his controversial predecessor dismissed in May.
NICKEL: The news from the Philippines has eased worries about shortages of the metal used to make stainless steel, where production is slowing. Three-month nickel closed down one percent at $9,070 a tonne.
DOLLAR: A softer U.S. currency helped boost sentiment in industrial metals markets as it makes dollar-denominated commodities cheaper for holders of other currencies, potentially boosting demand.
CHINA DATA: Clues to the strength of base metals demand in China, which accounts for about half of global consumption, will come from industrial production, investment, loans and property market data over coming days.
PRICES: Copper ended up 0.2 percent to $5,851, zinc added 0.2 percent to $2,786, lead rose 0.8 percent to $2,284 and tin added 1.1 percent to $19,900.