Goldman Sachs Raised LME Aluminium Price Target to $4,000/mt

SHANGHAI, Feb 9 - Aluminium prices hit their highest level since 2008 on Tuesday, driven by investor concerns about tight supplies and falling inventories. LME aluminium rose as much as 3.3% to hit $3,236/mt.

Aluminium has been the LME's best-performing product this year, with bullish investors flooding into the rapidly tightening market and targeting a new record above $3,380/mt.

Prices of key raw materials, from nickel to crude oil, have surged in recent months as consumption soars under the context of the global economy recovering from the pandemic, while supply has not kept pace.

Goldman Sachs has raised its 12-month aluminium price forecast to a record $4,000/mt, citing supply disruptions caused by power shortages in China and Europe at a time when demand in developed markets is “unusually” strong.

Prices for the light metal, which is used for packaging and transportation, are up about 14% this year after rising 42% in 2021 as China curbs production to reduce pollution. China's aluminium production accounts for more than half of the world's supply.

"Aluminium production was drastically reduced in the run-up to the Beijing Olympics to improve air quality," said WisdomTree analyst Nitesh Shah, predicting that rising demand will push up prices in the long run.

"The aluminium market is facing a melt-up this year due to a simultaneous shortage of aluminium inventories in China and outside of China," Goldman analysts said in a note. Concerns about supply shortages quickly pushed the premium of spot aluminium over three-month futures to $40/mt, the highest since July 2018. "A key feature of physical scarcity is that it has a propensity to spread, leading to large price swings," Goldman analyst said.

"Aluminium is in a perfect storm right now as the European energy crisis and the situation in China still restrict supply," said Wenyu Yao, senior commodities strategist at ING.

Aluminium inventories in LME-registered warehouses have fallen to 767,700 mt from nearly 2 million mt in March last year, the lowest level since 2007.

Inventories in Shanghai Futures Exchange warehouses, which typically rise at the beginning of the year, have fallen nearly 20% since the start of the year to 266,906 mt.