Aluminum May Gain 9% in Shanghai on Tight Supply, Stanchart Says

Aug 2, (Bloomberg)--Aluminum prices in China may rise about 9 percent “in coming weeks” amid concerns about a shortage in the world’s largest consumer and producer of the metal, according to Standard Chartered Plc analyst Judy Zhu.

Aluminum on the Shanghai Futures Exchange may advance to 20,000 yuan ($3,106) a metric ton, Zhu said in a report today. The metal has advanced 8.9 percent in Shanghai this year to close at 18,340 yuan today, outpacing a 4.6 percent gain by futures on the London Metal Exchange.

Stockpiles of the metal have fallen 59 percent this year to the lowest level since August 2009, according to data from the Shanghai bourse. Prices were last above 20,000 yuan in March 2008. Production of aluminum gained to a record for a third month in June as high prices, ample raw materials and power supplies prompted smelters to raise output.

“Strong demand on the ground has been supportive for the rally in domestic prices so far this year,” Zhu said. Spot prices in Changjiang physical market in Shanghai are also trading at a premium over the three-month futures, suggesting less availability of the metal, Zhu said.

Rising prices in China may encourage metal producers to further raise output, depressing prices in the longer term, Zhu said. Two million tons of new capacity will start commercial production next year, the analyst said, citing data from London- based researcher CRU.

Inventories have tumbled this year as fabricators raised capacity-utilization rates to meet rising demand from makers of air-conditioner to beverage can producers. Power shortages eased in June as rainfall boosted generation of hydroelectricity, according to the National Development and Reform Commission.

Aluminum production jumped 13 percent to 1.59 million tons in June, a third monthly record, according to the National Bureau of Statistics.