Aluminium price surge to 2008 peak on supply woes

[LONDON] Aluminium surged on Tuesday (Feb 8) to a 14-year peak on stretched global supplies, particularly after China placed the city of Baise - a key producer of the base metal - in Covid lockdown.

The market also remains propelled by fears of a conflict between producer Russia and Ukraine, while rocketing energy prices have weighed on European output, according to analysts.

The metal used in everyday items jumped to US$3,236 per tonne in afternoon trade on the London Metal Exchange, reaching a level last seen in 2008.

The market later pulled back somewhat to US$3,223, which was some distance from the record pinnacle of US$3,380.15 struck in July 11 of that year.

"We think the price rise is first and foremost due to supply concerns," Commerzbank analyst Daniel Briesemann told AFP.

"In Europe, several hundred thousand tonnes of production have been curtailed because of the high energy costs.

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"In China, another city of several million inhabitants was placed in quarantine on the weekend after new Covid cases were detected there." The city of Baise, in southwestern China, had an aluminium production capacity of 1.7 million tonnes per year, according to the analyst.

"It is feared that the city's lockdown will hamper the transport of aluminium, thereby further restricting supply," he added.

"In an aluminium market characterised by tight supply such news falls on fertile soil." Aluminium faces the prospect of another large production deficit in the current year as demand continues to outstrip supplies as the world economy recovers from the pandemic.

City Index analyst Fiona Cincotta added that simmering Russia-Ukraine geopolitical tensions were fuelling gains across commodities.

"Russia-Ukraine geopolitical tensions have not just boosted oil and gas prices, but metal prices as well," she told AFP.

Traders are on tenterhooks after US President Joe Biden promised Monday to "bring an end" to the disputed Nord Stream 2 pipeline built to bring Russian gas to Europe, if Moscow invades neighbouring Ukraine.

"Aluminium is finding itself caught up in the delicate geopolitical situation for two main reasons," noted Cincotta.

"Firstly, aluminium production requires significant amounts of energy and gas is the primary fuel source. Fears that Nord Stream 2 could be halted are pushing prices higher.

"Secondly, Russia is a key producer of aluminium, threats of sanction from the West is also driving up prices.

"But that's not all, more broadly surging gas prices in Europe mean some producers have eased production levels." As a result, China's latest city lockdown had resulted in "sky high aluminium prices which don't look ready to fall yet", Cincotta noted. AFP