Aluminum inventories in the global network of London Metal Exchange warehouses fell to a 31-year low, adding further stress to a market caught between extreme threats to both supply and demand. .
Prices on the LME briefly rose as much as 3% on Thursday after inventories fell to 295,325 tonnes, equivalent to about a day and a half of usage globally. Stockpiles have fallen for 60 straight days as production cuts in Europe stemming from rising energy prices have left buyers facing critical shortages.
In base metals markets, investors have faced a tug-of-war between tight physical supplies and a gloomy outlook for demand, as the risk of a global recession mounts.
Tight aluminum supply dynamics helped push prices to an all-time high above $4,000 a tonne in March, but they have fallen more than 40% since then as investor confidence fades. The demand outlook looks particularly weak in Europe. Goldman Sachs Group Inc. estimates that the regional economy is already contracting.
However, aluminum consumes a lot of energy and producers have warned of big risks to supply as the energy crisis deepens in Europe, particularly during the winter months. That helped fuel a modest rally in aluminum prices in recent days, while the spread between spot and futures contracts this month has entered backwardation, indicating tight immediate supply, for the first time since March.
Aluminum traded on the LME up 1.3% at $2,455 a tonne at 10:40 am New York time, after previously hitting $2,496 a tonne. Most metals rose as investors saw tentative signs of broader macroeconomic pressures on industrial commodities beginning to fade.
Aluminum Stocks Hit 31-Year Low in Latest Sign of Tight Supply