Despite high inventory levels at the London Metal Exchange, aluminum has managed to outperform other base metals so far in 2011 as spot prices have climbed roughly 13%.
Perhaps the most important driver of aluminum’s relative strength is higher oil prices, according to Kenrick Jordan, senior economist at BMO Capital Markets.
“Given its high energy-intensity, rising oil prices pressure aluminum production costs,” he said in a research note.
“However, because they represent a threat to global economic activity and, thus, industrial metal demand, rising crude oil prices have helped to push copper and other base metals lower,” the economist added.
China’s efforts to cut production capacity is also providing support for aluminum as the country’s share of global production of the metal was slightly above 40% in 2010.
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