Aluminium prices rebound on Chinese output cut hopes

Prices of industrial metals including that of aluminium rebounded on Thursday on hopes that Chinese producers would finally start to make cuts to their primary metal production in the face of lower prices.

In recent times, metal prices in China have gone down to hit multi-year lows as a wave of speculative money swept the economy. As prices started rising, the smelter owners began releasing their excess capacity built up.

During the boom years, China put in a great deal of concerted efforts in developing the domestic metals and mining industry. As a result, the country became both the largest producer and consumer of many of the world’s commodities in a very short period of time. This was further facilitated by a wave of easy credits obtained by local governments and state-owned companies. A time came when China was at the global centre stage of industries such as aluminium.

In the past few weeks, a large number of Chinese aluminium smelters have cut their capacity or announced their plans to close smelters. This comes after a surge of short selling of the metal on the Shanghai Futures Exchange, where open interest - the number of active contracts - has more than doubled since the beginning of October.

“We think the SHFE message is finally getting through to the aluminium smelters of China,” said Paul Adkins, managing director of the consultancy AZ China.

These changes in trade scenario seem to have influenced market sentiments in a broader sense, which in turn is likely to boost the prices of the light metal in the global marketplace.