The quoted futures prices for three-month aluminum on the London Metal Exchange and the Shanghai Futures exchanged rose 4.70% and 6.70% this week, with market and media sources pointing towards a supply bottleneck in China following stricter road regulations.
Since mid-September, China has enforced a lower maximum load weight on trucks, from 55 mt to 49 mt, with Commerzbank commenting that "the costs of transporting aluminum by lorry have risen sharply," as a result as there are "not sufficient rail transport capacities available" in the aluminum-producing provinces in the north of the country.
Market analysts have said that this could increase producer costs by as much as 30%, the Wall Street Journal reported.
As of Friday morning, LME three-month aluminum was steadily trading at or above $1,700/mt for the first time since mid-2015, with the equivalent SHFE contract trading above Yuan 13,000/mt ($1,917/mt) since Tuesday.
On top of the price increases, the logistical backlog has led SHFE on warrant stocks to fall by 79% since the new regulation was implemented, with only 2,449 mt remaining on warrant as of Friday.
"This change has come at a time when orders in China are very decent, so there is also a demand story in play," a trader said Friday.
Since September 21, the day the regulation was introduced, several Asian LME warehouses have also seen a drawdown in stocks. Live Singaporean warrants have subsequently fallen by 11,425 mt as of Friday since September 21, with some market participants saying some of this may be sent to China on the higher price environment.
On the same day in September, 28,800 mt of LME warrants were canceled in Singapore with further cancellations arising over the month of October. Busan cancellations rose to 17,325 mt in early October, with the majority of this already loaded out.
