Oversupply drags down aluminium prices by 9.7 percent in May

Analysts fear another slump in aluminium as the metal price falls by 9.7 percent in May making it the biggest monthly drop since October 2012. For 10 straight sessions aluminium has seen a continuous drop – the longest slump since January and oversupply looks like the reason for the slide.

China, already known for pumping more metal into the system than required, is being further bolstered by cheap coal prices. More metal is being produced and this excess aluminium is likely to leak into the wider aluminium market outside China as well, according to a Citigroup analyst.

A stronger US dollar is also helping the Chinese economy as the cost of production calculated in local currency is being replenished through revenues earned in dollars.

Aluminium for delivery in three months dropped 0.8 per cent to settle at $US1738 a metric ton at 5.50pm on the London Metal Exchange. The price touched $US1731, the lowest since March 27, 2014.

The metal for immediate delivery was at a discount of $US39 to the three-month contract. That compares with a premium a month ago. The widening contango, when contracts with later delivery months cost more than nearer-dated metal, suggests there's a glut of metal, according to Societe Generale.