LONDON, Aug. 6 -- Aluminum, copper and nickel rallied to their highest levels in at least nine months in London as a world economic recovery spurs demand for industrial metals.
Europe's manufacturing and service industries shrank at the slowest pace in a year in July, adding to evidence the worst recession since World War II is ending.
"Confidence has been restored," Jorge Vazquez, a Laredo Texas-based vice president at the aluminum unit of HARBOR Intelligence, said on a conference call. "There is a lot of demand coming. Every sector has been growing month-over-month in every region."
Aluminum for three-month delivery on the London Metal Exchange added $79, or 4 percent, to $2,069 a metric ton by 5:25 p.m. local time. The contract advanced as high as $2,115, the highest since Nov. 5. Aluminum has gained 29 percent in the past month on improved demand from the automotive, packaging and construction industries.
"This is a huge risk rally," said Stephen Briggs, an analyst at RBS Global Banking and Markets in London. "Every risky asset has gone up on massive optimism about economic recovery. You don't stand in front of an oncoming train." In January, RBS was one of the first to say aluminum had bottomed.
In South Africa, supply of electricity to aluminum smelters may be at risk as state-owned Eskom Holdings Ltd. faces strike action over wages by South Africa's National Union of Mineworkers "as early as next week," labor union spokesman Lesiba Seshoka said by phone today.
"If the power went off in South Africa, it would clearly affect production at the South African plants," Briggs said. The country produced 811,000 tons last year, while global output of aluminum was about 39 million tons, according to Banc of America Securities-Merrill Lynch.
Stockpiles of aluminum monitored by the LME rose 6,800 tons to a record 4.57 million tons today, exchange data show. About 70 percent is tied up in warehousing transactions and isn't available to the market, Barclays Capital estimates. Stockpiles climbed 3.7 percent in July, the smallest increase in a year. In terms of weeks of consumption inventories peaked, HARBOR's Vazquez said. "Not only have inventory levels peaked and are going down, but prices are undervalued," he said.
Aluminum will average 75 cents a pound ($1,653 a ton) this year, 11 percent more than estimated previously, Michael Widmer, an analyst at Banc of America Securities-Merrill Lynch in London, said today in a report. He raised his prediction for next year by 9.5 percent to 79 cents ($1,742 a ton).
Copper rose $130, or 2.2 percent, to $6,180 a ton after reaching $6,235, the highest since Oct. 2. Copper for September delivery rose 0.7 percent to $2.8155 a pound on the New York Mercantile Exchange's Comex unit, rebounding from a drop of as much as 1.7 percent.
Nickel advanced $921, or 4.8 percent, to $20,271 after reaching a high of $20,450 a ton, the highest since Aug. 29. The metal, mostly used to make stainless steel, has added 25 percent over the past month. Zinc rose 3.4 percent to $1,916 a ton, lead gained 1.6 percent to $1,952 a ton, and tin jumped 3.1 percent to $15,200.