Aluminium leads the bull run in base metals

21 Aug 2017

At present, aluminium is in the news for all the right reasons. After a dismal performance in June’17, aluminium is currently trading 22 percent higher on a year-to-date basis, boosted by fears of an imminent supply shortage. This can be seen in sharp jump in average LME aluminium prices from $1892/t in June to a whopping $1991.13/t so far in Aug’17, highest average since February 2013. On the MCX, prices jumped to an average of Rs.126.39/kg so far in Aug’17, highest since 2008.

The latest spike in prices to five year highs on Shanghai Futures Exchange (ShFE) and 30 month highs on LME was a result of news of more than expected aluminium output cuts from China. In a statement released by Shandong Development and Reform Commission (SDRC) on 8th Aug’17, the province has ordered closure of 3.21 million tonnes of illegal capacity that was built without permits. This is highly significant since Shandong province has aluminium capacity of 10-12 million tonnes, accounting for a quarter of China’s total capacity.

In the statement dated July 24, world’s biggest aluminium supplier Hongqiao has been ordered to shut 2.68 million tonnes per year of capacity whereas Xinfa Group was told to close 530,000 tonnes by the end of July. Earlier this month, Hongqiao said that it would cut more than 2 million tonnes per year of “out-dated capacity”, but no timeline was given for the same.

Not only this, unprecedented rally in Steel and iron ore prices gave way to sharp gains in base metals. Shanghai Steel Rebar futures are already up by more than 30 percent on a year to date basis, all thanks to upcoming winter output cuts in China, the spill over effect of which could be seen in the industrial metals space.

Sourcer-ET