Aluminium nose-dives to three-month low, India base metal prices drop in tandem

Aluminium traded on London Metal Exchange (LME) dropped significantly to touch the lowest in past three months on Monday along with other base metals in the pack as investors turned speculative about a possible U.S. Fed rate hike this month and started shedding risky assets.

"The market has got spooked that there's going to be a September rate hike, but none of the macro data supports that," said analyst David Wilson at Citi in London. "Our economics team don't think there will be a hike (in September), so it's probably a flash in the pan. Some of the weakness looks a bit overdone with one or two exceptions."



Higher interest rates drive up financing costs in metals industry that is usually cash-intensive and tend to dampen trading activity and prices of the metals.

Benchmark aluminium on the LME closed down 0.6 per cent at $1,568 a tonne, the weakest since June 13. On Friday, it declined further 0.8 per cent. Aluminium has been the worst performing metal on LME over the past month as investors have been seen worrying about restarts of closed smelters in China, the biggest producer and consumer of the metal.

Meanwhile, China's central bank chief economist said the country should take immediate steps to curb capital flow into the property market and state-owned companies to help decelerate the rising debt levels in the economy. This further added to the jitters in the base metals market.

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In India, base metal prices dropped to INR 5 per kg at the non-ferrous metal market on Monday owing to slowing demand from the end user industries at domestic spot market in tandem with a weak commodity market trend overseas.

Market watchers said slackening demand from the end user sectors in the Indian spot market in addition to a weak trend in base metals in international markets have led to the decline in base metal prices.