Concerns over tighter supply, higher oil boost aluminium

London (May 15)  Aluminium prices rose to a one-week high on Monday as the market focused on the potential for output cuts in top producer China, expectations of a tighter supplies and higher oil prices.

Benchmark aluminium on the London Metal Exchange was up 0.8 percent at $1,906 a tonne at 1019 GMT from an earlier $1,910, the highest since May 5.

"If the cuts are as draconian as some of the bulls would have you believe, then yes it can make a difference," said Robin Bhar, analyst at Societe Generale. "We could see a more balanced market in China and lower exports to the rest of the world."

SMOG: China ordered aluminium producers in 28 cities to slash output during winter, outlined plans to curb coal use in the capital and required coal transport by rail in the north, as Beijing intensifies its war on smog. ALUMINIUM OUTPUT: China accounts for more than half of global aluminium production estimated at around 59 million tonnes last year.

OIL: Crude rose above $52 a barrel for the first time since April after Saudi Arabia and Russia agreed on the need to extend output cuts for a further nine months until March 2018. ALUMINIUM COSTS: Higher energy costs raise the floor for prices of aluminium, where power can account for between 25 and 40 percent of production costs.

ALUMINIUM INVENTORIES: Also helping is a tighter LME market due to tumbling stocks of aluminium in LME approved warehouses, which at around 1.4 million tonnes are down more than 30 percent since mid-Jan. LARGE POSITION: Reinforcing nervousness about a tight LME market is a large position holding between 40-49 percent of aluminium cash contracts and warrants and cancelled warrants -- material earmarked for delivery -- at 37 percent. DOLLAR: Support for base metals also from a lower U.S. currency, which when it falls makes dollar-denominated metals cheaper for non U.S.-firms, potentially boosting demand. CHINA DATA: Gains expected to be capped by weak industrial production and investment data in April. TIN PREMIUM: Concern about nearby supplies on the LME market pushed the premium for the tin cash over the three-month contract to a two-month high at $130 a tonne on Friday . Benchmark tin was up 0.4 percent at $19,900 a tonne.

TIN INVENTORIES: Stocks of tin in LME warehouses at 2,300 tonnes are near their lowest since 1989. The tightness is reinforced by one entity holding between 50 and 79 percent of cash contracts and warrant holdings. PRICES: Copper was up 0.9 percent at $5,609 a tonne, zinc rose 1.1 percent to $2,583, lead gained 0.6 percent to $2,138 and nickel added 0.2 percent to $9,340.

Source: Reuters