Aluminum prices on the London Metal Exchange hit a 13-year high Monday, extending a year-long vertical ramp amid supply risks in Guinea and alumina refining woes in China and Europe.
The benchmark contract on the LME climbed nearly 1%, touching its highest level since 2008 at $3,000 per ton. Prices have jumped 50% this year and 15% in the last three weeks.
Aluminum prices have been supported by production curbs in Chinese smelting regions, often to alleviate the strain on the power grid. The latest price surge comes from a military coup in Guinea last Monday sparked concerns over the supply of bauxite, a sedimentary rock with high aluminum content.
A stream of announcements from China has been about challenges faced by smelters. On Monday, Steelhome reported that Yunnan would limit smelter capacity to reduce energy. Smelters in the European Union are also facing pressure with record-high power costs.
"In China and increasingly in the EU, policy risk to aluminum supply is growing," Goldman Sachs' analysts Jeff Curri told clients in a note Monday. He is not worried about the coup in Guinea affecting the bauxite supply just yet and says upside risks persist due to further logistical bottlenecks.
Another factor boosting prices is dwindling exchange stockpiles and strong demand. LME warehouses report aluminum inventories have plunged 33% since March to 1.3 million tons, and stocks in Shanghai Futures Exchange plummeted 42% to 228,529 tons since April.
The metal has wide applications in everything from car pates, appliances, defense weapons, airplanes, and even the soda can, has faced strong demand since the pandemic after global central banks and governments unleashed trillions of dollars in stimulus. Goldman Curri recently told clients:
"As demand improves seasonally from September, aided by reduced lockdown effects and some probable supportive policy adjustments, we expect continued tightness onshore into Q4 and support for higher import volumes of refined metal. This fundamental setup will offer support for a trend higher in both copper and aluminum prices in particular."
Another tailwind for Bloomberg Industrial Metals Index, already at a decade high, could be the troughing of China's credit impulse.