Aluminum prices follow gold’s steps, down to four-year low

Despite the slump in the price of gold stole the spotlight this year, aluminum’s own skid to a four-year low should have also been sending loud warning bells, as several analysts say the metal’s sinking trend is likely to continue unless China changes plans.

Prices for aluminum, the second most widely used metal after steel, have been on the spot for years as the market struggles with oversupply and soaring stocks. Based on data from the World Bureau of Metal Statistics, the global aluminum market was in oversupply by some 1.23 million tonnes in the first nine months of the year, while it had 539,000 tonnes in excess in 2012.

It shouldn’t come as surprise then that the metal’s price sank Wednesday to its lowest value since July 2009, hitting $1,748 a tonne.

Correcting the downward trend seems simple, writes Laura Clarke at WSJ.com:

China (…) accounts for around half of global production, and while Rusal and American competitor Alcoa have both announced production cutbacks this year, the key to next year’s market will be whether or not smelting companies in China choose to scale back capacity.

The rest of the world has been already doing its part, show figures from the International Aluminium Institute. According to the industry body, daily production of the metal outside China fell 4.1% between April and October this year, the lowest since August 2010.

Rusal, the world’s largest aluminum maker, said recently it would produce 9% less this year, or 357,000 tonnes, as it shut down its more expensive plants. BHP Billiton (ASX: BHP) and Rio Tinto (ASX: BHP), in turn, have also said they would be open to sell part or all of their aluminum divisions.

David Wilson, metals analyst at Citigroup, told FT.com (subs, required) that prices for the metal could drop below $1,700 within the next few months, unless something is done.

“We’ve got to see some more closures,” he was quoted as saying.

As it is now, total global output of the lightweight metal is expected to increase about 6% this year.

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