Thursday, February 2

Falling inventories boost aluminum but surprises lie ahead


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LONDON — Aluminum rose on Tuesday, helped by a weakening dollar and a sharp fall in inventories available on the London Metal Exchange (LME), but rising COVID cases in China and expectations of surplus supply next year limited gains.

Benchmark aluminum on the LME was up 1.7% at $2,400.50 a tonne at 1144 GMT after 32,950 tons were earmarked for delivery out of LME-registered warehouses, lowering on-warrant stocks to 237,650 tons.

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LME aluminum inventories have been falling in recent weeks and stocks in Shanghai Futures Exchange warehouses, at 92,373 tons, are near multi-year lows.

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Yet prices of the metal used in transport, construction and packaging have declined in December and are down 15% this year due to a global economic slowdown.

“Demand is weakening, especially in China,” said Citi analyst Wenyu Yao, predicting further price falls.

Citi expects the 65-70 million tons a year market to be oversupplied by 900,000 tons next year, she said.

In China, the biggest metals consumer, cities scrambled to install hospital beds and build fever screening clinics amid a surge in COVID-19 cases that will likely disrupt economic activity.

Analysts expect economic stimulus measures but on Tuesday China’s central bank kept benchmark lending interest rates unchanged and Chinese stock markets fell, echoing broader declines on global equities markets.

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The dollar weakened, however, helping dollar-priced metals by making them cheaper for buyers with other currencies.

LME nickel surged 6.9% to $29,100 a tonne, erasing losses of recent days. A trader said liquidity was so low that buy orders were able to send prices sharply higher.

“We see nickel prices declining to $26,000 a tonne over the next three months and falling even further to $22,000 tons by the end of 2023,” said Citi analyst Tom Mulqueen, predicting hefty surprises for 2023 and 2024.

LME copper was up 0.5% at $8,362 a tonne, zinc was up 1.1% at $3,044, lead rose 0.3% to $2,165.50 and tin was 1.3% higher at $23,600. (Reporting by Peter Hobson Additional reporting by Siyi Liu and Dominique Patton; Kirsten Donovan)

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financialpost.com