Reuters reported that sentiment is warming in China's aluminum market after industry players interpreted a cut in the amount of money banks must keep as reserves as a sign that local credit could improve in 2012.
Worries over tight credit at home and slower economic growth both in China and overseas had prompted traders at 2 day meeting in the southern province of Guangdong to express caution over demand in the world's top aluminum market next year.
China's central bank said that it would cut bank reserve requirements from December 5th 2011 for the first time in 3 years and central banks in some developed countries took joint action to boost liquidity, pushing up equity and commodity prices and helping ease investors' worries.
A senior analyst at a large state owned Chinese metals said that "A day before, people were bearish on the domestic market next year. But after last night's cut, the mood has improved."
Some analysts warn it is too early to say if Beijing will adopt a looser credit policy now and if cash strapped domestic firms will receive more credit in 2012.
Mr Yao Xizhi senior analyst at state backed research firm Antaike who felt the cut would support domestic aluminum prices within one or two weeks said that "In the short term, firms would find it easier to obtain credit. But the cut should not be seen as a sure signal that the credit policy is loosening."
Mr Yao kept his prediction for China's aluminum demand to rise 9% on the year to 21.7 million tonnes in 2012 with the growth rate smaller than this year's forecast of 13.8%.
Sources at fabricating plants said that export orders for aluminum products have been weak for deliveries scheduled in the first quarter of next year, due to a slowing economy in developed countries. Worries over the debt crisis in the euro zone were also discouraging fabricating plants in China from accepting export orders from new clients.
A trader with an aluminum fabricating plant in Guangdong said the firm had cut exports to the United States in the second half, thanks to fewer orders and it was unclear if exports would rise next year.
Traders said that a fall in aluminum prices below USD 2,000 this week prompted Chinese importers to seek spot primary aluminum and Chinese smelters to book spot alumina imports the main raw material for aluminum production.
Benchmark three month LME aluminum fell below the USD 2,000 level this week, a level last seen in the third quarter of last year creating margins for imports because the fall in domestic prices lagged the LME. Prices of alumina imports typically are based on London Metal Exchange aluminum prices in China and a fall in LME metal prices cut import costs. Those spot bookings may raise China's imports of primary aluminum and alumina in December.
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