Aluminum oversupply translates to four-year low prices

Aluminum , China , Commodities , Currencies , Metals , US Dollar Nov 28, 2013 No Comments

AluminumPrices for aluminum, the second most widely used metal after steel, for delivery in 3 months settled 0.2 percent lower at $1,754 a ton, the lowest since July 2009, on the London Metal Exchange today.

According to the World Bureau of Metal Statistics, the global aluminum market was in oversupply by some 1.23 million tonnes in the first nine months of 2013, following a surplus of 539,000 tonnes for the whole of 2012. It’s this quantity of metal above ground which drove prices this week to their lowest value since mid-2009.

Traders and analysts say there is no sign of an immediate upswing. The LME unveiled new rules earlier this month that are aimed at shortening the amount of time end-users must wait to receive aluminum and other metals. Warehouses registered with the exchange will be required to ship more metal out than they take in if waiting times for deliveries exceed 50 days. Concerns about the new rules, which are expected to hit aluminum the hardest because stockpiles in warehouses are so large, are exacerbating the metal’s fall.

Some aluminum smelters in China, the world’s top producer and consumer of the metal, could in 2014 turn to spot shipments or short-term contracts for raw material alumina as the ratios used to calculate annual term contracts climb, trading sources said. China churns out nearly enough alumina to meet its current aluminum-production needs, but more smelting capacity is expected to come online next year, making some smelters and traders keen to secure imports. About two tons of alumina are used to produce one ton of metal.

Most Chinese alumina importers and sellers were still in talks on 2014 shipments, with both sides assessing the impact on global supply of Indonesia‘s planned ban on ore exports next year and the uncertain outlook for Rio Tinto’s Gove alumina refinery in Australia, the smelting sources said.

A stronger dollar is also making metals, which are priced in the U.S. currency, less attractive for buyers using other currencies. The greenback has strengthened against many of its counterparts, including the Japanese yen and Australian dollar, supported by robust employment data in the world’s No. 1 economy.The U.S. Dollar Index, which measures the currency against a basket of currencies, has risen 1.3% over the past month.

A Shanghai-based trader at a large aluminum producer in China said that in the next few trading sessions, he expects aluminum to fall further, but not below $1,700 a ton, adding that holiday-thinned trade may exacerbate big swings in prices.


Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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