Chalco’s plan to hold inventories to boost prices may fail says analysts

Shanghai Metal Exchange had found that Chalco was planning to withhold aluminium inventories of up to 1.2 million tonnes along with 10 other leading aluminium producers of China in the hope of boosting aluminium prices.

However such a stance seems difficult at the moment given the current market scenario.

Considering the losses incurred by the high-cost smelters holding onto large volumes is unreasonable even the low-cost smelters, although more profitable cannot commit to stocking large inventories of unsold materials.

Stockpiling works when the demand is high and supply is plenty to boost the price. Although there is no dearth of supply of aluminium in China demand is uncharacteristically low given the looming Chinese New Year ahead on February 19.

Analysts believe that the impulsive move could stir some immediate sentiment but in the long run it would hurt the market as the exit of less efficient capacity would slow down and when this withheld inventories finally flow back into the market, it would cause unnecessary supply glut and price distortion.