September 08, 2008

China\'s aluminum market pressured by oversupply

Interfax China reported that China's aluminum market is falling due to high stockpile levels, even though domestic aluminum consumption remains strong. Market players are worried that domestic aluminum prices could struggle to break their current downward trend in the remaining months of the year due to oversupply.

The report cited a trader from Shenzhen as saying that "Domestic aluminum stockpiles climbed rapidly after the National Holiday in early October, pulling down aluminum prices in both the spot and futures markets. Apparently, domestic market supplies have exceeded consumption, although we are confident that China's consumption will remain strong in near future."

Mr Jing Chuan an analyst with Great Wall Futures in Shanghai predicted that domestic oversupply could continue to be a feature, and thereby further depress aluminum prices during the rest of the year. He said "As Shanghai's aluminum prices were higher than London's prices, imports rose and exports were restrained in September. This led to mounting supplies in the Chinese market. As both Shanghai and LME aluminum stockpiles are on the rise, there are no favorable conditions for price growth at the moment."

Mr Wang a sales official with Shanxi Huaze Aluminum & Power Co Ltd. said "Stockpiles increase as domestic aluminum output climbs, and the current stockpile level is reasonable when compared with such great aluminum production. Our sales performance is quite stable because of strong demand, even though the domestic market is seeing a downward trend in prices. He added that we believe the margin for further falls in aluminum prices could be limited, as downstream consumption remains strong. Our current stockpile level is 1,000 tonnes off primary aluminum a day and this is completely affordable for us.”

China's primary aluminum and aluminum alloy exports dropped by 19%MoM to 44,019 tonnes in September while imports increased by 20% from August to 20,594 tonnes.

According to the latest report released by the World Bureau of Metal Statistics Global aluminum oversupply reached 368,000 tonnes for the first eight months this year.