Global aluminum declines and weak demand

Amidst volatility aluminum faced a serious downfall as China had excess capacity and is still expected to continue with the same. This caused pressure at the global level and dragged prices down.

Traders are expecting that sentiment for bulls may get eroded if the big projects of aluminum deals are broken and if the economic recovery falters. While some of the analysts shared the view that the counter is overpriced and may fall further.

For aluminum the cut off between weak fundamentals and strong premiums supported that the metal may be in oversupply in the coming month and flooding in warehouses is expected. Aluminum has not been as positive as other base metals and analysts are of the view that its demand may not increase despite good economic prospects for industrial metals.

According to the statistics released from the International Aluminum Institute, it was also down on the figures of daily average primary aluminum output which rose to 68,600 tonnes in January from a revised 68,500 tonnes in December. Russia's United Company RUSAL Limited the world's largest aluminum producer said that it would consider supplying the metal to a physically backed aluminum exchange traded fund but would not sponsor the fund itself.

Aluminum may be comparatively laggard in the base metal complex as the Chinese lessened some of their production but are easily in a condition to turn it on again as they have ample amount of surplus capacity.

This may put significant pressure on prices in near future. Aluminum remained dull during February as the market consolidated in INR 7 range. The light metal has been generally heading north for the past eight months now but there is some lethargy setting in. At the moment the 13 week moving average that captures a commodity’s quarterly trend seems to be providing some support.

This may lead to some strength to be seen over the near term. However bulls should be wary of the fact that if this moving average currently lying around INR 111 per kilogram is broken on the downside with a strong momentum we might head into a period of prolonged weakness in aluminum.