While the move means unsold Rusal material could hit the market, balances are tightening overall, as reflected by falling stocks. Investors are also counting on more stimulus from China after the Chinese New Year break in February. Aluminium stocks in LME approved warehouses stand at 1.3 million, near their lowest since May 2018, while stocks in Shanghai Futures Exchange (ShFE) warehouses are at 690,000 tonnes, down 30 percent since last May.
Oliver Nugent, commodity strategist at Citi, said China had cut three million tonnes of aluminium capacity last year and stocks were now being drawn, adding that demand would likely improve after the Chinese new year thanks to stimulus measures from Beijing. Three-month LME aluminium ended up 1.5 percent at $1,894 a tonne, bringing gains for the year to around 2.5 percent. Aluminium ended 2018 down 18.6 percent on bets the Rusal sanctions would be lifted and on US-China trade tensions.
Indicating potential short covering ahead, aluminium exhibits the largest short in the base metals complex, equivalent to 22 percent of open interest, according to broker Marex Spectron. China on Tuesday unveiled measures aimed at spurring sales of items ranging from cars and appliances to information services, as the world's second-largest economy grows at its slowest pace in nearly 30 years.
"We remain of the view that, with the market in heavy deficit and demand set to improve, the skew of price risk into mid-year is to the upside," BMO Capital Markets said in a note. The United States on Monday announced criminal charges against Chinese telecoms giant Huawei, escalating tensions with Beijing just days before trade talks between the two countries.
Activity in China's vast manufacturing sector likely shrank for the second straight month in January. Nine miners are missing after an earth tremor struck KGHM Polska Miedz's mine near the Polish town of Rudna. Copper ended up 0.8 percent at $6,050 a tonne, zinc ended down 0.9 percent at $2,656, lead closed down 0.1 percent at $2,075, tin closed up 0.1 percent at $20,675 while nickel closed up 2.5 percent at $12,120, having hit its highest since last October.