Aluminium hits 2-month high as new LME rules expected

Aluminium touched the highest level in two months on Monday as traders said investors were betting that the London Metal Exchange (LME) would make changes to warehouse rules that would boost the price of the metal.

Three-month aluminium on the LME climbed to a session high of $1,900 a tonne, the highest since Aug. 23. It failed to trade in closing open outcry activity but was last bid at $1,895, up 0.8 percent.

The LME said on Friday its board had made a decision on whether to overhaul its controversial warehousing network, which is plagued by backlogs especially in aluminium, but it would reveal that decision later.

"There's a belief that when the LME changes come out, it will have a positive effect on aluminium," a trader said.

Aluminium volumes were the highest of any LME metal on Monday at 15,200 lots, compared with 11,108 for zinc and 10,595 for copper.

"Aluminium prices are showing tentative signs of breaking out of their trading ranges, and two closes above $1,890 could set up an advance to $1,920 as the next stop," analyst Edward Meir at broker INTL FCStone said.

"Views are hardening quite clearly to the idea that tapering is a long way off now," BNP Paribas analyst Stephen Briggs said.

The Fed's rate-setting committee ends a two-day meeting on Wednesday. The chances it will trim its $85 billion monthly bond buying are seen as minimal given the uncertainty created by this month's government shutdown in Washington.

BNP had expected the Fed to start tapering in March next year but has now raised the probability that it could be later than that, Briggs said.

Asset purchases tend to support base metals by eroding the dollar and by increasing liquidity available to business and commodities investors.

The dollar rose against a basket of currencies on Monday. A stronger U.S. currency makes it more expensive for foreign investors to purchase dollar-priced commodities and therefore weighs on prices.

U.S. manufacturing output slowed in September as the production of computer and electronic goods fell, suggesting business spending ended the third quarter with less momentum.

Chinese money market rates and policy were also in focus after rates shot up last week to their highest levels since June and regulators signalled they were considering mild tightening to rein in rampant inflation in China's housing market.