Nearly a third of the world's aluminium is being produced at a loss because of metal prices dampened by high inventories and weak growth prospects, fund manager Perpetual said on Tuesday.
At the same time, the high cost associated with shutting down over-producing aluminium smelters was keeping markets amply supplied with fresh tonnages, said Andrew Corbett, a metals analyst for the Australian fund, which has about $3.5 billion invested in the resources sector.
Aluminium prices have tumbled nearly 20 percent in the past three months to around $2,165 a tonne, while London Metal Exchange stocks stand at around 4.53 million tonnes, or a tenth of total projected global production this year.
"Thirty percent of the world's aluminium industry is underwater at these current prices," Corbett told a media briefing.
Alcoa Inc, the largest U.S. aluminium producer last month said the economic slowdown had hurt demand and knocked prices lower, denting its third-quarter profit.
Aluminum Corp of China Ltd , the country's top aluminium maker, was also feeling the effects of a weak market, missing forecasts for third-quarter earnings.
The world's biggest aluminium producer, Rio Tinto , has formed a separate division to hold six Australian and New Zealand units being put up for sale, including smelters.
The sale, which would leave Rio Tinto's remaining aluminium business focused mainly on its more profitable Canadian operations, is designed to help the group more than double its aluminium earnings margins to 40 percent by 2015.
Corbett said aluminium producers stood to gain over the longer term from a drive among consumers to use more of the light metal, which is seen as more environmentally friendly than some other metals, and a lack of investment in new smelters while so many existing ones run at a loss.
But more immediately, he said, weak fundamentals and stagnant consumption would weigh on the sector's prospects.
COPPER OUTLOOK BRIGHTER
Corbett said the outlook for copper, the most actively traded contract at the LME, held more promise because of the high demand from China for imports and an inability among the world's producers to keep pace with consumption.
Copper miners overall were "struggling" to produce up to 16 million tonnes of copper this year against global demand closer to 18 million tonnes, he said, despite even the highest-cost miners seeing profit margins of up to 40 percent on the metal they sell.
In contrast to aluminium, LME copper stocks of around 407,000 tonnes could meet world demand for only less than two weeks, according to Corbett.
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