The news helped to ease concerns over possible disruptions to metal supplies from Russia.
Aluminum rose 0.9% to $3,236 a tonne on the LME early afternoon. The metal reached $3,333 in intraday trading last week, the highest price since a record of $3,380.15 was touched in 2008.
[Click here for interactive aluminum price chart]
The metal has led gains in base metals this year with an advance of 14%, as rising fuel costs and environmental curbs snarl supply in Europe and China.
“Bullish factors include power costs having spiked due to winter and Russia capping gas supply, which in turn had prompted production cuts leading to supply shortages,” Liberum Head of Commodities Strategy Tom Prices told S&P Global Platts.
The most recent hit to European supply was the Slovalco aluminum smelter in Slovakia which is majority-owned by Norsk Hydro. The company said that it would be cutting production at the smelter to around 60% due to high energy and carbon prices.
Alcoa also temporarily curtailed its San Ciprian smelter in Spain on Jan. 1 for two years until January 2024 due to ongoing challenges from high energy prices.
“Aluminum production is energy-intensive and energy costs globally account for over one-third of production costs on average,” Standard Chartered Global Research Executive Director and commodities analyst Sudakshina Unnikrishnan told Platts.
“These smelters sit at the high end of the cost curve, with energy costs comprising a sizeable chunk of production costs,” Unnikrishnan said.
“They are therefore extremely sensitive to European power prices, which have rallied sharply in recent months.”
Stockpiles held by the London Metal Exchange shrank again on Wednesday, alongside most other metals. Copper inventories rose 7.6% from the lowest since 2005, signaling some relief for its incredibly tight market.
In China, the biggest producer and consumer of aluminum, prices are supported by tight supply because of pandemic-driven lockdowns and constraints during the Beijing Winter Olympics, Jinrui Futures Co. wrote in a note.
(With files from Bloomberg)
