Aluminium drops on oversupply worries

Aluminium hit a three-week low on Thursday on concerns of oversupply and a cut in Chinese power prices, while lead and zinc hit multi-month highs on further inventory drawdowns.

Daily London Metal Exchange (LME) data showed lead stocks MPB-STOCKS fell 725 tonnes to 223,125 tonnes, their lowest level since mid-March, while zinc stocks MZN-STOCKS fell 50 tonnes to 509,925 tonnes, their lowest point in five years.

LME three-month lead jumped 2 percent to close at $1,962 a tonne after touching a high of $1,967.50, its strongest since mid-December. Zinc finished up 0.8 percent at $2,177 a tonne after hitting $2,182.50, its highest since early January.

Aluminium ended down 0.5 percent at $1,762.50 a tonne, having earlier hit a three-week low of $1,759. Aluminium traded on the Shanghai Futures Exchange fell more nearly 2 percent overnight.

Chinese-based manufacturers of semi-fabricated aluminium products have ramped up exports to global markets over the past year, easing a shortage and putting pressure on aluminium prices and premiums.

Top producer Alcoa Inc has raised its surplus forecast to 326,000 tonnes in 2015 due to these exports.

Also weighing on the market, China is to cut the price of electricity supplied to the grid following a decline in coal prices. Traders and analysts said the Chinese market was pricing in lower costs for aluminium producers.

"The beneficiaries, in terms of power users, are obviously aluminium among other sectors. If that arbitrage (with LME) widens, then we're back into the realms of more semis (semi-fabricated products) to come out," said analyst Lachlan Shaw of UBS in Melbourne.