China Speculators Swarm to Aluminum as Cuts Spur Supply Bet (Bloomberg News – August 23, 2017)

With a week to go, it’s already the heaviest month ever for trading aluminum in China.

The metal has typically been one of the quieter contracts on China’s mercurial futures markets, but supply reforms in the top producer and consumer have caught the attention of the nation’s speculators and sent prices to the highest in almost six years. Trading in August has already surpassed the previous monthly record set in November.

While the frenzy is raising concern aluminum’s just the latest Chinese commodity bubble that will be deflated by regulators before it bursts, there’s also optimism that investors are tapping into a real shift in the fundamental outlook for the metal. The Shanghai Futures Exchange has already stepped in to calm trading in steel and zinc this month as a surge in volume propelled prices to multi-year highs.

“In steel I think it’s more about speculation and momentum trading, but in aluminum I really think there is more of a fundamental story there,” Mark Pervan, chief economist at consultancy AME Mineral Economics Pty Ltd., said by phone from Melbourne. “China contributes about 55 percent of global aluminum capacity, and when you have such concentrated supply, any major changes in that market matter big time.”

China is shutting down unlicensed aluminum production capacity estimated by Citigroup Inc. to be about 4 million metric tons a year. It has also ordered supply curbs over winter to reduce pollution that will shutter as much as 1 million tons a year, according to the bank.

For the rest of this article: