Aluminium nears record high on declining stockpiles

“The deficit is now moving at such a speed that it’s unsolvable, actually,” he said.

More expensive aluminium threatens to further raise the cost of consumer goods, at a time when energy bills are jumping and food prices are near a record. Materials from copper to palm oil to crude have surged, with some Wall Street banks projecting a commodities supercycle that could last for years.

For aluminium, supplies had been plentiful for most of the last decade as China built many new smelters. But as Beijing clamps down on carbon emissions, traders and analysts believe that the country’s largely coal-reliant aluminium industry will no longer boost supplies.

The government has set a cap on smelting capacity, and while it remains in place the onus will be on producers elsewhere to step up output to meet consumption needs.

“Western producers have hardly added any production over the past 15 years,” Mueller said. “The question is: what is the incentive price?”

Trafigura, one of the top traders of the metal, is not alone in forecasting higher prices. Goldman Sachs sees aluminium hitting a record $4,000/tonne within the next 12 months as buyers face “unprecedented” supply tightness.

Still, Mueller’s prediction that inventories will be entirely depleted in just two years highlights the potential fireworks that some traders are bracing for.

“When you look at these numbers, you would need huge demand destruction to balance the market,” he said. “It’s difficult to be short in such a market.”

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Source: businesslive.co.za