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Aluminium prices rose on Tuesday as the cost of raw material alumina set a record high, increasing production costs.
Three-month aluminium on the London Metal Exchange (LME) was up 1.4% at $2,632 per metric ton during official rings.
The rally was supported by a surge in the price of alumina, or aluminium oxide, a form of refined ores used for making primary aluminium.
The most traded front-month alumina contract on the Shanghai Futures Exchange (ShFE) hit an all-time high of 5,003 yuan on Tuesday, before closing 2.9% higher at 4,933 yuan.
It has gained 18% since the beginning of October.
The rally prompted ShFE to widen the trading band to 9% from 8% on Tuesday, the second change in the past two weeks.
Alumina prices are not only being driven by speculating funds, fundamentals remain strong and room for correction could be limited, a trader said.
Alumina supply tightened with a shortage of bauxite due to disruptions in Australia and Guinea. Bauxite is the raw ore that can be refined into alumina.
Chinese alumina consumption has been strong this month despite the higher prices as aluminium producers ramped up output citing healthy margins.
"Alumina went crazy, but even then the margin of aluminium smelting is still too big. This rally simply means a narrowing of already very-fat margins," a second trader said.
Zinc, meanwhile, was up 1.9% at $3,132.5. The premium of the LME cash zinc price over three-month price rose to $15.74 a ton, in a structure known as backwardation.
Zinc, mainly used for preventing steel corrosion is the only base metal currently in backwardation, which is typically a sign of tight near-term supply. Copper prices rose 0.8% to $9,631 after inventory in warehouses monitored by the London Metal Exchange dropped to a 77-day low of 280,100 tons.
China said its refined copper output in September remained stable at 1.14 million tons.
Nickel fell 0.9% to $16,555, lead was 1.3% higher at $2,084 and tin edged up 0.3% to $31,095.
(Reporting by Julian Luk in London; Editing by Kirsten Donovan)
