Aluminum Rises to 3-Week High on Speculation Supply May Be Cut

Aluminum rose to a three-week high on speculation the metal's availability may be reduced as data showed most of the inventory monitored by the London Metal Exchange is controlled by of one group of investors.

Between 50 percent and 79 percent of LME-monitored aluminum inventory belongs to one investor or a group of investors, the exchange's latest data as of Nov. 30 show. Buyers of the metal for immediate delivery must pay more than for future delivery, indicating supply is constrained.

``The market is very tight now and people are worried if they are short aluminum,'' said Andrew Silver, a London-based trader at Natexis Commodity Markets Ltd., one of 11 companies trading on the LME's floor.

Aluminum for delivery in three months on the LME slipped 25 cents to $2,817.75 a metric ton as of 10:02 a.m. in London. The metal, used in cars and beverage cans, earlier traded as high as $2,835, the highest intraday price since Nov. 10. It traded May 11 at a record $3,310.

Buyers have to pay $16.50 a ton above the benchmark three- month price if they want immediate delivery. That premium, also known as a backwardation, is the first since Nov. 2, according to data compiled by Bloomberg. In a commodity market where production meets or exceeds demand, futures prices normally are higher than those for immediate delivery.

Aluminum has gained 24 percent this year on rising demand from China, the world's largest consumer of the metal. Usage will exceed production this year, from an oversupply in 2005, according to Stephen Briggs, a London-based analyst at Societe Generale.

Rising Alumina Supply

``Much energy has been expanded on pushing aluminum and we cannot rule out an attempt on $3,000 a ton but in our view the fundamentals point to failure to sustain such levels,'' Briggs said in a Dec. 1 report.

Rising supplies of alumina, the raw material used to produce aluminum, will narrow aluminum's production shortfall to 100,000 tons in 2007, from 350,000 tons expected this year, Briggs said. Aluminum prices will peak this year, averaging $2,560 a ton for the contract for immediate delivery, before falling to an average of $2,300 next year, Briggs forecast.

Copper stockpiles monitored by the LME climbed 4,500 tons, or 2.9 percent, to 161,227 tons, the exchange said today. That's the largest one-day gain since Nov. 2. Copper for delivery in three months on the LME rose $10, or 0.1 percent, to $7,010 a ton.

Among other metals traded on the LME, nickel dropped $150 to $33,750 and lead gained $10 to $1,705. Tin dropped $50 to $10,650 and zinc added $60 to $4,460.