Aluminium prices rose on Wednesday as smelter closures reduced supply, but analysts said prices are unlikely to rise sharply because slowing economic growth would also curtail demand.

A smelter in Slovakia became the latest in Europe to announce a closure due to sky-high energy costs last week, while Bloomberg News reported on Wednesday that a German smelter is also considering cutbacks.

Authorities in China’s Sichuan province have, meanwhile, ordered the temporary shutdown of smelters that can produce around 1 million tonnes a year due to a drought and heat-wave, said Julius Baer analyst Carsten Menke.

Benchmark aluminium on the London Metal Exchange (LME) was up 0.4% at $2,433.50 a tonne at 1006 GMT.

However, prices of the metal used in transport, packaging and construction have largely flatlined in recent weeks after falling 40% from a peak in March as the global economy slowed.

“The past week has seen rising supply disruptions but aluminium has appeared unfazed,” said analysts at Citi, predicting prices would stay around $2,400 over the next three months.

“Industrial metal prices are at fair levels,” said Menke. “A rapid rebound looks unlikely amid prevailing economic uncertainties.”

Around 1 million tonnes of aluminium capacity has been taken offline in Europe, Citi said, while another 500,000 tonnes in Europe and 200,000-300,000 in the United States are under threat.

Around 65-70 million tonnes of aluminium are produced each year.

But Citi said there was surplus supply in Asia, where Chinese smelters have ramped up production, and expectations for consumption of the metal are weakening.

Supply on the LME does look tight. LME inventories have fallen below 300,000 tonnes from almost 2 million tonnes in March 2021 and traders are paying a premium for quickly deliverable cash aluminium. MALSTX-TOTALCMAL0-3

In wider markets, investors were cautious, with weak economic data pushing down global equities and holding the dollar near 20-year highs.

Source: Reuters