Aluminum Leaps Past $2,000 a Ton After China Deepens Capacity Cuts

  • Lightweight vehicles, airplanes also fueling demand for metal
  • Shandong province called for cuts to illegal aluminum capacity

In today's 'Futures in Focus,' Brian Battle of Performance Trust Capital Partners discusses a bounce in aluminum and the outlook for oil. He speaks with Mark Barton on 'Bloomberg Markets.' (Source: Bloomberg)

Aluminum cemented its spot as the best commodity this year as prices jumped to over $2,000 a metric ton for the first time since 2014.

Prices have rallied as China ramps up efforts to curtail illegal or polluting capacity. The metal added 2.2 percent to $2,008 as of 3:58 p.m. in London, bringing gains for the year to about 19 percent, the biggest rally among 22 raw materials on the Bloomberg Commodity Index.

"It does feel like China’s supply-side reform is deepening, and aluminum is definitely one of our favorite metals,” Xiao Fu, head of global commodities strategy at BOCI Global Commodities U.K., said by phone.

"It’s not just about supply,” she added. “There’s a significant shift in demand taking place as well as China diversifies and upgrades its industry. That’s creating demand for aluminum in lightweight vehicles, and the aerospace industry is looking very healthy in the longer term as well."

China’s Shandong province, the top aluminum producing hub, called for the closure of 3.21 million tons a year of illegal aluminum capacity by end of July, according to a statement on Shandong NDRC website dated July 24. The cuts are deeper than expected, Citigroup Inc. analyst Jack Shang said in an emailed note.

“This confirms our thesis that the clampdown on unlicensed capacity will be strictly enforced,” he wrote. “We see more upside risks on aluminum prices in the coming quarters.”

The global aluminum market may flip to a significant deficit, according to a report from Wood Mackenzie Ltd. A quarter of capacity in Shandong was unqualified last year, WoodMac said, citing government data. This year’s figure is 3.2 million tons a year, or 3 million tons at current operating rates, and if all that gets shut, it would represent 9 percent of the nation’s total production for 2017, it said.

Read more: ‘This Time It’s Different’ in China as Rogue Smelters Are Doomed

— With assistance by Susanne Barton

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