High Inventory and Huge Cost of Shutting Down May Bring Aluminium Industry a Hard Year

Due to the depressed market, profits of Chinese aluminium companies declined a lot in 2012.

Chinese economic situation has been steady since 2013. But market analysts don’t have positive comments. Almost all of them said that aluminium price won’t come out of bear market in 1 or 2 years.

The direct pressure of aluminium price comes from high inventory. From inside China, over supply situation is very tight. Until the first half of January, LME aluminium inventory was about 5.2 million tones. SHFE aluminium inventory was about 0.45 million tones, increased over 100% compared to 2012.

Another reason for over supply is over capacity. Data from WBMS showed that the over production in global aluminium market from January to October in 2012 was 143,000 tonnes.

Needs from real estate market which is the main part of end consumer is not so good. Because of government control, the real estate projects were reduced.

Barclays Bank predicted according to the exasperated sign of needs and supply that in the coming 4 seasons, global aluminium inventory will continue to increase. At the end of 2013, the inventory will be 8.67 million tones.

With the expansion of Chinese aluminium factories, many companies are facing deficit, but there is no possibility that these companies will stop running.

Shutting down the factories will cause more problems. Because restart the equipments will cost more, and shutting down the factories will lead to personnel placement problems. If companies stop running the factories, the markets will be taken by other people. Though there are deficits, most companies are still producing.

The cost of Chinese aluminium factories is around 15,700 yuan per tonne. The post aluminium price is around the cost price. But the support effect of cost and the up going economic situation will increase aluminium price a little. But destocking is a long term hard work.