LME Aluminium price falls as inventories surge to record

by Elena Morozova
(UK)

A surge in aluminium inventories to over 2.53 million tonnes sees the metal price fall to reach a September 2003 low.

On the LME, primary aluminium fell 4 per cent to reach a price not seen in over 5 years, as global output cuts by producers seem to be overtaken by even sharper falls in demand.

LME stocks which are near a record high increased by over 52,000 tonnes, and LME aluminium closed at $1,424 per tonne, following Friday, 16 January's close of $1,470 per tonne.

Unless there is an appreciable pick-up in consumer demand, it seems that aluminium production will just continue to pile up in the warehouses.

These falls in the price of this key base metal come as Chinalco, the Chinese state-owned aluminium producer, saw its profits fall by more than 50 per cent in 2008, because of the fall in aluminium and copper prices.

Smelters across the globe including in China are building up stockpiles of the metal, and there seems to be an oversupply and overcapacity which is leading inevitably to a downward pressure on aluminium prices.

Rio Tinto Alcan and Alcoa, two major world aluminium producers, have announced significant job cuts in an attempt to restructure their businesses to be better able to cope with the slowdown in global economic growth.

Nalco, a leading Indian aluminium producer, has marked down the prices of its products after the LME recorded a surge in warehouse stockpiles.

And new projects have been delayed, such as the joint venture between Saudi Arabian company, Maaden (51 per cent), and Rio Tinto Alcan (49 per cent) to build a new smelter, after the latter withdrew from the $10 billion venture.

Originally planned for completion in 2012, there is now expected to be a three year delay, leading to estimated completion in 2015.

And interestingly, Chinalco, which is the largest shareholder in Rio Tinto, prefers to increase its stake to 14.99 per cent rather than purchase some of the assets that Rio is trying to offload in its bid to reduce the major $40 billion debt on its balance sheet.

So the overall supply and demand dynamics do not look very positive in the near term for aluminium, with uncertainty over the extent of the global downturn and so its impact on the medium term demand for, and hence price of, primary aluminium futures.