China – The China’s State Reserve Bureau (SRB) will buy 290,000 tonnes of aluminum at 12,300 yuan per tonne in January 2009. The price is about 10% higher than the current aluminum spot price.
The SRB said it will buy 150,000 tonnes of the aluminum from the Aluminum Corporation of China (Chalco), the country’s largest aluminum smelter. The rest of the purchase will come from seven other smelters. The SRB aims to buoy the country’s gloomy aluminum sector, squeezed by declining prices and increasing stockpiles.
Global aluminum producers are feeling the crunch of oversupply. According to the International Aluminum Institute on December 29, the global aluminum stocks of producers reached 1.6 million tonnes in November, 1.4% less than in October, but 9.5% more than in the same period last year. Taking the stocks in the London Metal Exchange into account, the overall storage of aluminum topped 3.4 million tonnes, increasing 43% year on year.
Stockpiling in the LME has risen to 2 million tons from 920,000 tonnes at the end of 2007, which is seen as a reflection of the oversupply. A report issued by Bank of America said aluminum stockpiles have reached a five-year peak.
At the same time, international commodity prices have witnessed dramatic falls since the beginning of 2008: aluminum futures in the LME have dropped to half their record price of US$ 3300 per ton in July. And the spot price of aluminum has also dropped to its 1992 level.
Facing mounting reserves, producers have been forced to cut production. According to the CRU, more than 3 million tons of production capacity has been cut globally, including up to 2.4 million tonnes in China.
Kuni Chen, analyst from Bank of America, said that even though 65% of global aluminum smelters are suffering losses due to slumping prices and oversupply, production has fallen by no more than 9%. Chen expects production to further shrink in 2009 along with demand.