Shanghai aluminium hit its lowest in nearly 10 weeks on Wednesday while the London contract fell near an eight-week trough as falling coal prices eased trader concerns over supply shortage.

Aluminium smelting is an energy-intensive process and has been hit hard by China’s power crisis, pushing up prices of the metal in tandem with recent high coal prices.

However, thermal coal hit its 10% lower trading limit on Wednesday after China’s state planner said it had asked major coal-producing provinces to investigate and regulate illegal storage sites and to crack down on hoarding.

The most-traded December aluminium contract on the Shanghai Futures Exchange fell as much as 5% to 20,065 yuan a tonne, the lowest since Aug. 20. It later firmed slightly to close at 20,135 yuan, still down 4.6% for a sixth straight session of decline.

Three-month aluminium on the London Metal Exchange (LME) shed as much as 3.8% to its lowest since Sept. 3 at $2,723 a tonne.

“Declining coal prices are a short-term success. Still, it remains to be seen whether the supply of coal and other energy will ultimately meet the demand from households, which is the priority, and then let industries operate at their scale,” ING analysts said in a note.

“The heating season is only about two weeks away, and that could be a litmus test.”

FUNDAMENTALS

LME cash nickel was last at a premium of $125 a tonne over the three-month contract CMNI0-3, indicating tightness in nearby supply as readily available stocks in LME warehouses fell.

xOne party controls more than 90% of available LME zinc stocks and short-term futures, LME data showed.

LME copper fell 1.3% to $9,663 a tonne at 0705 GMT, zinc declined 1.5% to $3,373, tin lost 1.1% to $37,000 and nickel was down 0.6% at $19,970.

ShFE copper dropped 2% to 70,560 yuan a tonne, nickel shed 2.6% to 148,340 yuan and zinc fell 2.7% to 23,895 yuan.
Source: Reuters (Reporting by Mai Nguyen in Hanoi Editing by Sherry Jacob-Phillips and David Goodman)