Aluminum sets record high, lead leaps 12 percent

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.

Total stocks of the metal stand at 101,175 tons.

"Lead stocks are still relatively low at about five days of global consumption," said analyst Dan Smith at Standard Chartered. "The fundamentals are not fantastic but there is the prospect for a short-term bounce."

On the back of the China news about the power savings, zinc rose almost 9 percent to an intraday high of $2,030 a ton. It closed at $1,990, up from $1,865 on Wednesday.

The broad rally in metals failed to give a significant lift to the price of copper, which was seen relinquishing its leadership role in the complex.

The London copper price firmed to $8,230 a ton against $8,200/8,210 on Wednesday, but analysts said gains were capped as demand from top consumer China remained weak.

In New York, copper for September delivery fell 2.05 cents by the close to $3.7185 a lb on the New York Mercantile Exchange's COMEX division.

China's imports of unwrought copper and semi-finished products fell 12.6 percent in June to 173,851 tons from May, according to initial data from China's customs bureau.

"China has been carrying the copper market on its back for a long period of time and traders have really become discouraged by the weak numbers from the Chinese customs office," said Rob Kurzatkowski, futures analyst with Chicago-based OptionsXpress.

Nickel closed at $21,900 from $21,450 a ton while tin eased to close at $22,700 from $22,800/22,850.

(Additional reporting by Chris Kelly in New York; Editing by Marguerita Choy)