Aluminum Association updates on aluminium industrial activity

March’s bearish tone in base metal markets has carried into April, with generally disappointing ISM reports and a weak US March employment report reinforcing anxiety about the strength of the global and US recoveries.

Aluminum prices continued to sag, with the LME cash price now below $1,900/mt for a third week running. This week’s data has been mixed. Chinese lending surged in March, creating some optimism about a hoped for revival in Chinese growth.

The latest Chinese inflation data was also relatively benign, which helped dampen fears that policymakers in China will be forced to take immediate steps to restrain growth. (The medium term picture in China is less clear given the unsustainable trajectory of domestic debt.) Markets are also trying to digest the likely effect of the Bank of Japan’s large bond buying program.

Taken together, however, it is clear that large doses of liquidity are being injected into East Asia, the key consuming region for base metals. U.S. data this week centered on March retail sales, which dropped 0.4%, the weakest report in nine months. Although falling gasoline prices explain part of the decline (gasoline stations sales fell 2.2%), the softness was widespread with department stores, electronic stores and car dealers all reporting declines larger than the headline number.

The preliminary April reading of the Reuters - University of Michigan Consumer Sentiment Index also fell to 72.3 from 78.6 in March, echoing the drop in retail sales. Weak employment growth, an end to the temporary payroll tax cut, and cold weather all appear to have played a role. Together, the retail sales and sentiment reports highlight some of the headwinds facing the U.S. recovery and the up/down nature of U.S. growth at the moment.