LONDON: Aluminium prices hit their highest in nearly two years on supply tightness and surging buying interest from funds switching from copper.

Three-month aluminium on the London Metal Exchange(LME) was up 0.4% at $2,739 at 1127 GMT after peaking at $2,778 for its highest since June 9, 2022.

“Investors have been selling copper and buying aluminium this week,” said senior Marex metals strategist Alastair Munro. “Aluminium is the outperformer and is playing catch-up.”

LME aluminium has gained 15% this year, versus a 22% rally in copper, which last traded down 0.7% at $10,426.

Munro expects a continued inflow of “wider money” into metals, providing further support for aluminium. He also said investors had boosted buying of aluminium call options at strike prices above $3,000.

“Aluminium may not have a mining shortage story as big as copper, but alumina supply also got tighter,” Munro added.

Copper climbs, but high China stocks suggest ample supplies

Shortages of alumina, an intermediary product between raw material bauxite and aluminium, emerged recently because of lower output from China and disruption to Rio Tinto’s Australian exports.

One global aluminium producer has offered Japanese buyers a premium of $175 a metric ton for July-September, up 18% to 21% on a quarterly basis, demonstrating confidence in the demand outlook.

Japan is a major buyer of the metal widely used in transportation, construction and packaging. The premiums it agrees to pay each quarter over the LME price set the benchmark for Asia and are a gauge of physical demand.

In other metals, LME nickel added 0.1% to $20,490 a ton, zinc was up 0.5% at $3,114.50, tin rose 0.2% to $34,005 and lead was down 1.2% at $2,314.50.