LONDON (Thomson Financial) - Aluminium held onto gains after the chief executive of South African power utility Eskom confirmed proposals are under way to buy back significant amounts of power from industrial customers.
Although CEO Jacob Maroga did not mention the impact on aluminium smelters, an Eskom source told Reuters last night the utility is considering a complete power-supply buy-back from three smelters for 2008.
The smelters at risk include BHP Billiton (nyse: BBL - news - people )'s Bayside and Hillside operations in South Africa, as well as the Mozal smelter in Mozambique. Together, the three smelters produce around 1.5 mln tonnes of aluminium a year.
At 1.37 pm, LME aluminium for 3 month delivery was up at 2,778 usd a tonne against 2,691 usd at the close yesterday, having earlier touched 2,825 usd a tonne, its best level since late July.
Analysts at Standard Bank said while a total power-supply buy-back in South Africa is unlikely, 'some power restrictions are inevitable'. They noted also reports that Rio Tinto might delay or postpone its Coega smelter.
South Africa is currently in the midst of a power supply crisis that last month sparked a five-day closure of mines and smelters and a round of blackouts across the country.
Aluminium smelting is extremely energy intensive but not very labour intensive and Eskom believes it is an obvious industry to target in its attempt to increase South Africa's generation capacity as soon as possible.
Elsewhere, the LME said in a daily report aluminium stocks held in its warehouse fell by 1,825 tonnes to total 956,075 tonnes. The fall underlined the market's supply worries, boosting aluminium prices.
Although overall aluminium stock levels are not low as yet, the market fears they could trend down going forward, especially if the South African power crisis worsens.
In China, where smelter output has also been constrained by power outages and by severe weather conditions, the market estimates up to 650 tonnes of Chinese aluminium could be lost.
In other metals, three-month copper was down at 7,725 usd a tonne against 7,780 usd, amid renewed worries over the move by Chinese players returning from new year holidays to hold back on buying.
Fairfax analyst Marc Elliot said there are reports the Chinese are 'holding out for lower prices in anticipation of shipments due which will improve availability'.
In addition, the metal is under pressure from speculation data out tomorrow that will show copper inventories in warehouses monitored by the Shanghai Futures Exchange rose by 10,000 tonnes or 50 pct in the week to today.