Aluminium prices trading near one-month high

Aluminium prices hovered near one-month high this week with the metal benefiting from an overall increase in risk appetite on the sentiment that the UK will remain in the EU. Prior this week, the sentiment leaned toward the expectation that the UK would exit and concerns over that it would send investors on a flight to safety. Base metals like aluminium are perceived as riskier investments.

While the market’s recent focus has been on Brexit, and this has controlled the metal’s price, overall, aluminium’s fundamentals are weak with the biggest challenge remaining the market’s oversupply, but demand has been a bit of a bright spot. Aluminium saw some upside earlier in the year after China increased its infrastructure spending. However, there are concerns over how sustainable China’s demand for base metals like aluminium will be over the long-term. This is because a great deal of the country’s increased spending to boost its economy was financed with debt, and there are concerns over the level of debt the country has been taking on to boost its ailing economy.

Another concern is China’s aluminium overcapacity. While China and the US recently worked out arrangements for the country to reduce overcapacity in other markets, such as steel, no such deal has been made for aluminium leaving the global aluminium market oversupplied with no imminent means for a change. China accounted for about 54% of the word’s primary aluminium output in April.