Angel reports a decline in aluminium prices with faltering Chinese demand

Considering the falling demand of aluminium in China, the largest consumer, prices might dip in future according to Angel’s monthly report.

The closing of smelters and the consecutive tightening of supply had led to the highest price of aluminium in recent years. However the anticipated deficit is driving many to increase capacity, like Norsk Hydro is planning to update its output by 30 percent at the Suudal plant in Norway by the end of 2014 and by another 35,000 mt by mid 2015.

Aluminium prices had been gaining for the last 6 months but in September 2014, an 8 percent decline was noticed. This decline has been attributed to slowing investment growth, subdued CPI inflation, contracting imports, decelerating industrial production and widening PPI deflation which are indicating towards slower growth in China.

The National Bureau of Statistics, echoed the scenario in the construction sector where it is seen that the average price of new homes in 70 Chinese cities fell at an accelerated rate in August and has been falling four straight months till August.

The China Nonferrous Metals Industry Association figures reveal that Chinese primary aluminium output rose by 8.8 percent YOY breaking the 2 million mark for the first time (2.027 million tonnes) in August even when the demand was dismal. This dragged the prices even lower.

The falling price is also aided by the falling LME warehouse stocks which have fallen 16% this year which is the lowest in two years. There is still however historical levels of stocks of 4.6m tonnes in the warehouses. Since there is an opacity regarding the physical demand and supply in the market, many speculate that the fall in price could also be due to high storage costs at LME warehouses and some of the stocks are leaving the warehouses to move into cheaper non-bonded storage.