How China Can Boost Global Aluminum Prices (Easy Enough, Right?)

Indian followers of the gray metal, including NALCO’s Chairman Das himself, had predicted that aluminum would trade on the LME in the $2,100-2,200 per ton region in the first quarter of 2013.

But now, that seems to be an optimistic forecast, judging by the way prices have moved so far.

On April 2, aluminum prices hit a 7-month low on the LME. Benchmark aluminum closed at US $1,884 before touching the US $1,875 a ton rate, the lowest since August. Prices have been touching new lows, which most analysts attribute to a glut in production of aluminum.

Just a few days ago, LME aluminum prices had fallen to the biggest weekly drop in 14 months. So how can China possibly help?

Global output had increased 5.7 percent in January this year from the same period last year to 3.92 million metric tons, according to figures put out by the International Aluminum Institute. Chinese production had surged 16 percent.

Aluminum production exceeded demand by 419,400 tons last year, according to the World Bureau of Metal Statistics. Excess production and lower consumption leading to high inventory were additionally keeping the prices depressed.

Indian analysts have no doubt in their minds that the savior of this bear market can only be China.

Last year, they say, the prices were artificially propped by investors who held on to their aluminum stocks in anticipation of selling it at high prices later. Now, that was no longer the case.

In mid-March, China did try to mitigate the problem when China’s state reserves manager signed agreements with six smelters to buy 300,000 metric tons of aluminum at $2,434 a ton. The State Bureau of Material Reserve will eventually pay about 4 percent more than the spot price for the metal to be delivered in April and May.

Ironically, the low price seems to have started affecting Chinese aluminum manufacturers, too. A few days ago, the Aluminum Corporation of China (Chalco) posted its worst results since going public in 2001, blaming falling prices.

MetalMiner will keep an eye on whether China draws back for real, or just keeps talking the talk…

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.