Bloomberg

In a stellar year for base metals, aluminium has led the pack. Now, producers say surging raw material costs could drive prices even higher.

Alumina, the raw material used to make aluminium, has jumped 56 per cent since August after China shut down some production, triggering a wave of buying by traders and aluminium smelters. The rally is putting a strain on metal producers in China, where alumina accounts for 40 per cent of the cost of making aluminium.

Cost pressures could worsen in the months to come as Chinese environmental reforms weigh most heavily on bauxite and alumina producers.That may give extra fuel for aluminium’s 28 per cent rally this year, the biggest since 2009.

“The rise in raw material prices is lifting the global cost curve for aluminum production and that should support higher prices,” Svein Richard Brandtzaeg, chief executive officer of Norsk Hydro ASA, said in an interview. Prices for other key aluminium inputs including caustic soda, carbon anodes and pet coke have also jumped, he said.

The rally in aluminium and other metals shows how China’s changing policy goals can upend commodity markets with far-reaching effects. The economy has shifted to a period where high quality is sought, moving away from its fast-growth era, President Xi Jinping said during the National Congress in October.

Aluminium gained 1.8 per cent to $2,199 a metric tonne in London, near a five-year high.