LME B8Aluminum prices fall to a two-year low

Aluminum prices have fallen to a two-year low on the London Metal Exchange (LME), pressured by a mix of technical and fundamental factors that are weighing on the broader base-metals complex, given growing concerns about the health of the global economy.

Traders and brokers said sellers appeared to be taking advantage of any aluminum price rallies to pummel the price lower amid lack of enthusiasm for both aluminum's weak underlying fundamentals as well as macro-economic concerns over the European sovereign-debt crisis and its impact on global economic growth.

LME aluminum for delivery in three months on Tuesday hit a low of $US1,839 a metric ton, a level last seen in June 2010. Meanwhile, LME zinc and lead for delivery in three months were similarly lower, dipping to a nine-month low of $US1,776/ton and a near-two year low of $US1,760/ton, respectively.

"Demand for metals has fallen off and this has been reflected in price," said Randy North of RBC Capital Markets.

On the aluminum front, the market remains fundamentally oversupplied with many smelters operating at or below cost and LME-registered aluminum inventories at still relatively high levels due to long-term financing deals that have kept the lightweight metal in storage.

Excessive global aluminum stocks have been further exacerbated by a failure to sufficiently pare back aluminum production, particularly as aluminum smelters entrain lower production costs by renegotiating their power contracts in light of lower energy costs. Electricity accounts for more than a third of aluminum-production costs.

Metals analyst Leon Westgate of Standard Bank said China's Henan province has used subsidies and more recently lower power tariffs to keep Chinese aluminum production open.

Mr Westgate said power prices in Henan province, which accounts for about 20 per cent of China's aluminum supply, have fallen sufficiently to result in about a reduction of $US160 a ton in the cost of aluminum production there.

"This ... has the negative effect of more aluminum being produced as smelters ... restart previously unprofitable production, or reduces the reluctance or pressure on smelters to make any cuts in the first place," a US broker said.

Tuesday's heavy focus on aluminum was reflected in the fact that traded aluminum volumes were higher than copper volumes even though copper volumes are typically higher than aluminum volumes.