Aluminum sets record high, lead leaps 12 percent

By Anna Stablum and David Sheppard

LONDON (Reuters) - Aluminum jumped to a record high on Thursday on output cuts in top producer China, while lead surged more than 12 percent as the market fretted over lower inventories.

Aluminum for delivery in three months hit an all-time high of $3,380 per ton, up 6 percent from Wednesday, after China's top 20 smelters said they would cut output by 5-10 percent from July to reduce power consumption.

The energy-intensive metal, used in transport and packaging, closed at $3,290 per ton London Metal Exchange, up $100 from Wednesday.

The metal has gained nearly 40 percent since the start of the year on the back of power problems in China.

"We think this is just the beginning of the energy related disruptions the market is going to face," said analyst Gayle Berry at Barclays Capital.

"A power crunch is coming, more and more production losses will keep coming out of China. While more smelters have been built they're net short of energy," she said.

Inventories of aluminum in LME warehouses currently stand around 1.08 million tons -- enough for more than 10 days of global consumption.

"Aluminum could definitely go much higher. More people will buy because of the bullish China news," a trader on the floor of the LME said. "It will take off 1 million tons from the market, it will make a huge difference to the market."

China's aluminum output is estimated at around 13 million tons per year, economist John Kemp at RBS Sempra Metals said.

"If China's producers implement the agreed cutback ... the cuts will remove 600,000 to 1.2 million tons per year from the global market -- enough to eliminate the current surplus of around 1 million tons per year," Kemp said in a report.

However, some analysts believed the move was a short-term decision based on slowing Chinese demand for aluminum.

SHORT-TERM BOUNCE

Three-months lead soared more than 12 percent to $2,010 a ton as a rise in cancelled warrants -- material ready to leave warehouses -- sparked worries about supply. The metal ended at $1,984 a ton, up $194 from Wednesday.

"The dramatic rise in cancelled warrants is seen as metal stored in Singapore now being shipped to China," Berry said.

Cancelled warrants almost tripled in the past week to stand at 9,700 tons, according to Barclays research. "We didn't see restocking ahead of the summer, so now buyers need to keep coming back," Berry said.