Inventories of aluminium in London Metal Exchange warehouses are already at their lowest level in nearly 17 years and are likely to fall further in the coming days and weeks as more metal leaves the LME system for Europe, where supplies are scarce.

Record-high electricity prices in Europe have pushed up production costs for metals such as aluminum, which is widely used in the energy, construction and packaging industries; Western Europe accounts for about 10% of global consumption, which is expected to be around 70 million tonnes this year. In a recent report, Citigroup analyst Max Layton said aluminum supply risks remain high, with about 1.5 million to 2 million tons of aluminum production in Europe and Russia at risk of shutting down in the next three to 12 months.

Shortages in Europe have led to a sharp drawdown in LME aluminium inventories, which have fallen 72% since March last year to 532,500 tonnes, the lowest level since November 2005. More worryingly, warrant stocks available in the market, at 260,075 tonnes, are the lowest on record and are likely to fall further as more metal leaves LME warehouses. "Aluminium continued to rise from last Friday after warrant stocks fell to record lows, reflecting tight supply in markets outside China," said Wenyu Yao, an analyst at ING. However, supply growth has outpaced demand in the Chinese market... Chinese demand has been weak due to Covid-19 related lockdowns.

Benchmark aluminium prices on the London Metal Exchange (LME) earlier hit a one-week high of $2,865 a tonne. It was last up 1.2 percent at $2,822. Concerns about the LME's spot supply have lowered the cash discount on the three-month aluminium contract to $26.5 a tonne from $36 a week ago. Benchmark aluminium prices on the London Metal Exchange (LME) earlier hit a one-week high of $2,865 a tonne. It was last up 1.2 percent at $2,822. Concerns about the LME's spot supply have lowered the cash discount on the three-month aluminium contract to $26.5 a tonne from $36 a week ago.