Shanghai Aluminium Hits 2-year High on Coal Price Surge

Shanghai aluminium jumped 4 percent to its highest in more than two years on Wednesday, tracking higher coal prices, and a broader reaction to China’s steel capacity cuts, along with an improving outlook for the global economy.

Coal shortages in China after government-led capacity cuts that shut down many mines spurred prices of the fuel, including coking coal and coke used in steelmaking.

Chinese iron ore futures hit their highest in more than two years as a surge in coal prices lifted the demand for higher grade iron ore in order to boost efficiency and use less coal.

“Once the coal and steel prices rise, which is very closely related to real economy, then people start to say hey, what about the implication for the base metals?” said analyst Helen Lau of Argonaut Securities in Hong Kong.

Lau said aluminium production costs were boosted by rising prices of input coal, and as tighter regulation on trucks raised logistics costs for bauxite and alumina transport.

“If at each stage you have cost increase by 10 percent that eventually will have some impact on aluminium prices.”

Shanghai Futures Exchange aluminium finished up by 4.1 percent at 13,620 yuan ($2,012) a tonne by 0722 GMT. Earlier in the session, it surged to 13,995 yuan, its highest since Sept 2014.

Other metals pared some of the previous session’s stellar gains. London Metal Exchange copper eased by 0.2 percent to $4,727 a tonne, after a 2.1 percent advance in the previous session, when prices hit $4,754.50, the strongest since Oct. 13.

China is expected to step up copper imports in the coming months as a weaker yuan opens up arbitrage opportunities and demand picks up, partly fuelled by a boom in China’s property market, analysts and traders said.

LME zinc slipped by 0.6 percent to $2,354, paring gains from the previous session.

Shanghai Futures Exchange copper ended little changed at 37,760 yuan a tonne.

China’s state planner has urged coal miners to speed up production to tame the spike in prices, in a sign that Beijing is worried about the dwindling supplies ahead of winter. Coal can be used in smelting metals such as steel and aluminium.

Reflecting a brighter outlook for the global economy, Japan’s government raised its assessment on industrial output for the first time in nine months while U.S. home prices rose 5.1 percent in the year to August.

Chilean miner Antofagasta predicted that full-year copper output would be at the lower end of guidance, and production next year would still be low.