Demand headwinds push aluminium to five-month low

Aluminium fell to its lowest in nearly five months on Tuesday as funds betting on lower prices due to slowing demand sold, but worries about output cuts in Europe because of high power costs are expected to provide some support.

Traders said funds had been selling for some days now, initially to cut their long positions and recently taking bets on lower aluminium prices as data from China showed shrinking manufacturing activity.

Benchmark aluminium on the London Metal Exchange was down 1.5% at $2 715 a tonne at 09:32 GMT from an earlier $2 697.5 a tonne, the lowest since December 21.

“The potential for Chinese and global demand to be as weak … points to the need for caution near term,” said Citi analyst Max Layton.

But aluminium supply risks remain elevated, with about 1.5-million to two-million tonnes of output at risk of closure across Europe and Russia over the next three to 12 months, Layton said.

This is about 2% of global aluminium supplies estimated at about 70-million tonnes this year.

DEMAND: China’s economy has taken a hit as authorities race to stop the spread of record Covid-19 cases, which have led to a full or partial lockdown in dozens of cities.

China’s loan data and total social financing, a key gauge of industrial metals consumption, due over the next few days will provide clues to demand prospects.

China is the world’s largest producer and consumer of aluminium used widely in the power, construction and packaging industries.

UNITED STATES: Also weighing on industrial metals are rate rises in the United States, which has boosted the dollar. A higher US currency makes dollar-denominated metals more expensive for holders of other currencies, which undermines demand.

OTHER METALS: Copper was up 0.8% at $9.313 a tonne, zinc slipped 0.1% to $3 610, lead fell 0.7% to $2,138, tin was down 1.7% at $36 500 and nickel ceded 1.2% to $27 850.