MarketWatch
Alcoa output cuts unlikely to push up prices soon
Edited by : AL CIRCLE
2 min read
Alcoa's AA +0.33% decision to cut 12% of its aluminum smelting capacity by mid-year could at best support London Metal Exchange prices around current levels and spur some speculative interest from commodities funds but the move won't be enough to have a substantial bullish impact on the over-supplied physical market, analysts and traders said Friday.
The U.S. company said Thursday it is permanently closing or suspending 531,000 metric tons of smelting capacity in a bid to improve its cost position and competitiveness.
LME aluminium was trading at $2,045/ton around 0800 GMT, up $9 from Thursday's close, but a small move compared with Thursday's 1.4% drop.
Three-month aluminum futures are down 17.2% from a year ago, and 27.0% from its latest peak in May 2011.
Market participants said the news is unlikely to change the bearish outlook for the flagging physical market, where abundant supply and softening demand in regions including Asia are weighing on sentiment.
"It does show that big smelters don't hold a positive outlook toward demand for aluminum and the overall global economy this year," said Yao Xizhi, chief aluminum analyst at Beijing Antaike.
He expects prices to remain stable around current levels unless there are large-scale cutbacks at major western producers.
Some high-cost Chinese smelters have scaled back production in the last two months in response to weak market conditions, but these suspensions have so far not helped stem the price decline, China-based analysts noted. Aluminum has shed 7.4% since the start of November.
Chinese smelters with the highest costs have been making a loss since prices fell below $2,300/ton on the London Metal Exchange in September. The high level of inventory in LME warehouses is contributing to the gloomy outlook, traders said.
Aluminum stocks on the London Metal Exchange total 4,980,625 metric tons now, up from 4,549,800 tons a month ago. There are also substantial inventories held off exchange, traders said. With stocks at such a high level and demand stalling in major consuming countries including Korea, Taiwan and Japan, physical premiums are likely to remain under pressure in the next few months, they added.
Japanese premiums for the first quarter settled at $112-$113/ton, down from $118-119/ton in the fourth quarter 2011, due to ready supply and deteriorating domestic demand.
The U.S. company said Thursday it is permanently closing or suspending 531,000 metric tons of smelting capacity in a bid to improve its cost position and competitiveness.
LME aluminium was trading at $2,045/ton around 0800 GMT, up $9 from Thursday's close, but a small move compared with Thursday's 1.4% drop.
Three-month aluminum futures are down 17.2% from a year ago, and 27.0% from its latest peak in May 2011.
Market participants said the news is unlikely to change the bearish outlook for the flagging physical market, where abundant supply and softening demand in regions including Asia are weighing on sentiment.
"It does show that big smelters don't hold a positive outlook toward demand for aluminum and the overall global economy this year," said Yao Xizhi, chief aluminum analyst at Beijing Antaike.
He expects prices to remain stable around current levels unless there are large-scale cutbacks at major western producers.
Some high-cost Chinese smelters have scaled back production in the last two months in response to weak market conditions, but these suspensions have so far not helped stem the price decline, China-based analysts noted. Aluminum has shed 7.4% since the start of November.
Chinese smelters with the highest costs have been making a loss since prices fell below $2,300/ton on the London Metal Exchange in September. The high level of inventory in LME warehouses is contributing to the gloomy outlook, traders said.
Aluminum stocks on the London Metal Exchange total 4,980,625 metric tons now, up from 4,549,800 tons a month ago. There are also substantial inventories held off exchange, traders said. With stocks at such a high level and demand stalling in major consuming countries including Korea, Taiwan and Japan, physical premiums are likely to remain under pressure in the next few months, they added.
Japanese premiums for the first quarter settled at $112-$113/ton, down from $118-119/ton in the fourth quarter 2011, due to ready supply and deteriorating domestic demand.
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