Aluminum Prices Surge as Chinese Demand Accelerates

Aluminum prices are hovering around 18-months highs as investors bet strong Chinese buying and improving industrial demand will see the metal catch up with its base-metal peers.

Three-month aluminum futures on the London Metal Exchange, the international benchmark, ended Friday at $1,863.50 a metric ton, the highest closing level since April 2019. The metal, which is used to make cars, planes and beverage cans, was flat on Tuesday at $1,845 a ton.

Other base metals have also been setting new highs, with tin on the LME on Monday reaching a 15-month closing high of $18,570 a ton, and nickel on Tuesday touching an 11-month intraday high of $15,870 a ton.

As China's economy began a sharp rebound from its coronavirus lockdown earlier this year, base metals rallied. But aluminum trailed behind other metals because a large glut had built up in warehouses as smelters had been slow to reduce output amid easing demand.

Aluminum's position at the back of the pack was one of the reasons investors are turning to it, with the expectation that shrinking stockpiles would boost its price.

"Investors are always looking for undervalued, underpriced assets in the hope that they will play catch-up," said Robin Bhar, an independent metals consultant. "Aluminum has been the laggard so investors have been buying it in the hope that it would gain on other metals."

After hitting their highest level in over three years in July, stockpiles of aluminum have been in steady decline as factories have ramped up orders. Aluminum stored at LME-approved warehouses has declined by 14% since the start of August.

The world's second-largest economy has been the biggest source of demand because its car plants restarted production earlier than plants in Europe and North America. Chinese imports of the metal have recently reached their highest level in over a decade.

China also became a net importer of aluminum for the first time in 11 years in Augustunusual for a country that produces more than half of the world's supply.

Currency fluctuations have also lifted Chinese demand. As metals are priced in dollars in international markets, weakness in the U.S. currency makes them cheaper for holders of other currencies. At the same time, China's yuan has hit multiyear highs against the dollar, further strengthening locals' buying power. One dollar bought 6.68 yuan Tuesday in onshore markets, the yuan's strongest level since July 2018.

There have also been signs that demand from global car makers has picked up, Mr. Bhar said. European car sales rose in September for the first time this year, according to data released last week.

While aluminum supplies are still ample, investors are also increasingly tying up large quantities of the metal in controversial stock financing-trades. These trades almost guarantee investors a profit, Mr. Bhar said, by buying and storing aluminum in warehouses to sell at a later date when prices are expected to be much higher.

There are also hopes that China's next Five-Year Plan will include infrastructure proposals that could supercharge the nation's demand for aluminum, according to analysts at ING. Investors are looking to a key meeting of the Chinese Communist Party set to begin Monday for more detail on the plans, they said.

Write to Will Horner at William.Horner@wsj.com

By Will Horner

Aluminum prices are hovering around 18-month highs as investors bet strong Chinese buying and improving industrial demand will see the metal catch up with its base-metal peers.

Three-month aluminum futures on the London Metal Exchange, the international benchmark, ended Friday at $1,863.50 a metric ton, the highest closing level in nearly 1 1/2 years. The metal, which is used to make everything from cars and planes to beverage cans, fell 0.8% on Tuesday to $1,844, according to CQG.

Other base metals have also been setting new highs, with tin on the LME on Tuesday reaching a 15-month closing high of $18,555 a metric ton, and nickel closing at $15,822 a metric ton -- its highest point in nearly a year.

Copper, the most actively traded and commonly referenced industrial metal, has also surged lately. Most actively traded futures in New York added 2% to $3.1480 a pound Tuesday, hitting their highest level since June 2018.

As China's economy began a sharp rebound from its coronavirus lockdown earlier this year, base metals rallied. But aluminum trailed behind other metals because a large glut had built up in warehouses as smelters had been slow to reduce output amid easing demand.

Aluminum's position at the back of the pack was one of the reasons investors are turning to it, with the expectation that shrinking stockpiles would boost its price.

"Investors are always looking for undervalued, underpriced assets in the hope that they will play catch-up," said Robin Bhar, an independent metals consultant. "Aluminum has been the laggard, so investors have been buying it in the hope that it would gain on other metals."

After hitting their highest level in over three years in July, stockpiles of aluminum have been in steady decline as factories have ramped up orders. Aluminum stored at LME-approved warehouses has declined by 14% since the start of August.

The world's second-largest economy has been the biggest source of demand because its car plants restarted production earlier than plants in Europe and North America. Chinese imports of the metal have recently reached their highest level in over a decade.

China also became a net importer of aluminum for the first time in 11 years in August, unusual for a country that produces more than half of the world's supply.

Currency fluctuations have also lifted Chinese demand. As metals are priced in dollars in international markets, weakness in the U.S. currency makes them cheaper for holders of other currencies. At the same time, China's yuan has hit multiyear highs against the dollar, further strengthening locals' buying power. One dollar bought 6.67 yuan Tuesday in onshore markets, the yuan's strongest level since July 2018.

There have also been signs that demand from global car makers has picked up, Mr. Bhar said. European car sales rose in September for the first time this year, according to data released last week.

While aluminum supplies are still ample, investors are also increasingly tying up large quantities of the metal in controversial stock financing-trades. These trades almost guarantee investors a profit, Mr. Bhar said, by buying and storing aluminum in warehouses to sell at a later date when prices are expected to be much higher.

There are also hopes that China's next Five-Year Plan will include infrastructure proposals that could supercharge the nation's demand for aluminum, according to analysts at ING. Investors are looking to a key meeting of the Chinese Communist Party set to begin Monday for more detail on the plans, they said.

Amrith Ramkumar contributed to this article.

Write to Will Horner at William.Horner@wsj.com


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  10-20-20 0947ET
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