LONDON: Aluminium prices rose on Tuesday as the cost of raw material alumina set a record high, increasing production costs.
Three-month aluminium on the London Metal Exchange (LME) was up 1.6% at $2,637.5 a metric ton by 1604 GMT.
The rally was supported by a surge in the price of alumina, or aluminium oxide, a form of refined ores used for making primary aluminium.
The most traded front-month alumina contract on the Shanghai Futures Exchange (ShFE) hit a record high of 5,003 yuan on Tuesday before closing 2.9% up at 4,933 yuan. It has gained 18% since the beginning of October.
The rally prompted ShFE to widen the trading band to 9% from 8% on Tuesday, the second change in the past two weeks.
Alumina supply tightened with a shortage of bauxite owing to disruptions in Australia and Guinea. Bauxite is the raw ore that can be refined into alumina.
“Alumina went crazy, but even then the margin of aluminium smelting is still too big. This rally simply means a narrowing of already very fat margins,” a second trader said.
Zinc, meanwhile, was up 2% at $3,138 a ton. The LME cash zinc premium over the three-month price rose to $15.74 a ton, in a structure known as backwardation.
Zinc, mainly used for preventing steel corrosion, is the only base metal in backwardation, which is typically a sign of tight near-term supply. Copper prices rose 0.3% to $9,584.5 after inventory in warehouses monitored by the LME dropped to a 77-day low of 280,100 tons.
China said its refined copper output in September remained stable at 1.14 million tons. In other metals, nickel fell 1.7% to $16,420 a ton, lead was 0.7% up at $2,071.50 and tin edged down by 0.3% to $30,930.
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