Aluminium rose to its highest level in more than three-months on Monday and expectations are for further gains as the market prices in rising energy costs. Copper for three-month delivery ended slightly down at $8,400 on the London Metal Exchange from $8,435 at Friday's close.
Earlier the metal, used extensively in power and construction, hit $8,490, a high since May 19. Aluminium touched $3,169 a tonne, its highest since March 14 and a gain of about 25 percent since the beginning of this year. Prices are only about a $150 from the record high of $3,310 a tonne seen in May 2006.
It closed at $3,143 a tonne from $3,150 on Friday. "Aluminium prices have strengthened quite perceptibly, both on concerns about short-term power shortages, and in the long term on the economics of the industry with rising oil prices," said John Kemp, economist at RBS Sempra Metals.
"Copper may struggle to make fresh highs, but aluminium is very likely to (make fresh highs). The near term trigger could be supply problems in China, which will underscore how fragile the power system is there."
Prices of aluminium used widely in power, packaging and construction have been boosted this year by power shortages in China and rising costs of energy, which make up about one-third to 45 percent of smelting costs. Analysts estimate average costs of smelting aluminium at around $2,500 a tonne.
Supply disruptions in India, Brazil, Australia and the United States have also helped to boost sentiment. "In total we estimate 1 million tonnes (2 percent) of production has been lost this year due directly or indirectly to power supply problems," Citigroup Global Markets said in a note. Copper hit a record high of $8,880 on April 17 and has since come under pressure from worries about weaker demand from China, the world's largest consumer.
A stronger dollar has also weighed on copper used as a base metals benchmark by investors. A higher US currency makes metals denominated in dollars more expensive for holders of other currencies.
"You could argue that it's surprising how well copper's been doing given that Chinese thirst is so much less than it was," said ABN Amro analyst Nick Moore, referring to Chinese data. China's refined copper imports fell 26.4 percent on the month and 19 percent on the year in May on the back of strong international prices. But traders say low inventories have prevented some from selling short - betting on lower prices in the future. Stocks of copper in LME warehouses at around 123,000 tonnes account for less than 3 days global consumption.
"With copper, the market's very, very wary about shorting it as the inventories are very low and a strike or any disruption could push it back up," an LME trader said. Nickel closed at $21,850 a tonne from $22,400 a tonnes. Sentiment in the nickel market has been hit by expectations of a slowdown at stainless steel mills. Zinc at $1,926 from $1,945 on Friday, lead at $1,865 from $1,880 and tin at $23,300 from $22,700.
"Tin prices are firmer this morning ... supported by declining LME stocks and ongoing production problems in China and Indonesia," Barclays Capital said in a note. Tin stocks in LME warehouses fell 80 tonnes to 6,895 tonnes, a fall of more than 50 percent since late August last year.