Aluminium prices held near six-month highs on Tuesday as rebounding Chinese demand fuelled expectations of a tightening market.
Benchmark aluminium on the London Metal Exchange (LME) was down 0.3% at $1,746.50 a tonne by 1104 GMT, having jumped by 2.2% on Monday.
The metal used in transport and packaging has risen 20% from a low in April as the coronavirus outbreak spread globally.
Supporting prices are a recovering auto industry and China, where high local prices have sucked hundreds of thousands of tons of metal to the country and stockpiles remain low, said Julius Baer analyst Carsten Menke, adding that prices are unlikely to rise above $1,900 because idled plants would resume production.
"Any rally is going to be self-defeating because you have so much free capacity in the system just waiting for prices to be right," he said.
AUTOS: Germany's car industry has seen demand picking up, a survey by the Ifo economic institute showed. A shift to electric vehicles has created a new and substantial demand stream for aluminum.
US FACTORIES: US manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July.
CITI: Analysts at Citi forecast LME aluminum cash prices to be around $1,700 in the fourth quarter, rising to $1,900 in 2021 and $2,000 in 2022.
They said a demand recovery could move the global market from a 2.5 million ton surplus in 2020 to a 1.7 million ton deficit by 2023.
"Producer cost inflation through rising prices of alumina and energy, as well as a weaker dollar, should help support the aluminum price rally," they added.
CHINA IMPORTS/STOCKS: China's aluminum imports have surged to their highest in years. Stocks in Shanghai Futures Exchange warehouses, at 221,819 tons, are down from more than 500,000 tons in April.
LME STOCKS: Inventories in LME-registered warehouses, however, have risen to 1.6 million tons from about 970,000 tons in March.
OTHER METALS: LME copper was down 0.7% at $6,442.50 a ton, zinc fell 0.4% to $2,315.50, nickel slipped 0.1% to $13,930, lead lost 1% to $1,850 and tin was 1% down at $17,830.