Aluminum climbs as Alcoa shrinks capacity on China export deluge

Aluminum advanced after Alcoa Inc., the largest U.S. producer, announced reductions in smelting and refining capacity, the latest response to a flood of Chinese exports that have created a global surplus and driven prices to the lowest level in more than six years.

The metal used to make everything from aircraft to window frames and cans climbed as much as 1.5 percent to $1,516 a metric ton, the highest level in a week, after the New York- based company said it will reduce smelting capacity by 503,000 metric tons and alumina refining by 1.2 million tons. The measures will be completed by the end of next quarter.

Prices have slumped 27 percent in the past year after Chinese shipments surged to a record as new low-cost capacity started in the world’s biggest supplier. Goldman Sachs Group Inc. says producers face the longest period of pain in a generation with increasing surpluses through 2018. Dwight Anderson, founder of hedge fund Ospraie Management LLC, has described the metal as “miserable,” probably leading to closures and bankruptcies.

“The production cuts boosted the market,” Xu Maili, an analyst at Everbright Futures Co. in Shanghai, said by phone. “The move could have a positive impact on Chinese smelters as they can make more money by exporting metals. That may mean that the glut lasts longer.”

 

The increase in prices helped producer shares. Vedanta Ltd., India’s largest aluminum and copper maker, gained as much as 4.1 percent and Hindalco Industries Ltd. added 3.8 percent in Mumbai.

Aluminum output in China expanded 12 percent in the first nine months as the country’s economy grows at the weakest pace in a generation. Smelters shipped surplus metal onto world markets with exports surging 18 percent through September. A cut in power tariffs soon may give producers a further boost, three people familiar with the matter said last week.

Alcoa plans to break itself up by separating manufacturing operations from its smelting and refining business. In June, Alcoa permanently shut its idled Pocos de Caldas smelter in Brazil, bringing the company’s production capacity to 3.4 million tons, compared with 4.5 million tons at the end of 2010. Century Aluminum Co. has also shuttered U.S. capacity as prices dropped.

There are signs the market is tightening. Canceled warrants, as orders to remove metal from warehouses are known, surged 21 percent in the past three days to 1.1 million tons, the highest in five weeks, London Metal Exchange data show. While the market is in surplus, the bookings are probably a sign tighter supplies have spurred traders to cover positions, ICBC Standard Bank Plc says.

Aluminum production will exceed demand by 1.13 million tons this year and by 832,000 tons in 2016, according to ICBC Standard Bank estimates before the latest Alcoa cuts.

The metal’s advance may prove short-lived if history is any guide. Zinc has erased its gains afterGlencore Plc announced 500,000 tons of production cuts on Oct. 9, while copper is hardly changed on levels before the company disclosed output reductions Sept. 7 to remove 400,000 tons from the market.

LME copper traded little changed at $5,121.50 a ton by 3:41 p.m. on Tuesday. Nickel fell while zinc gained. Aluminum traded at $1,511.

 

 

Source:  mineweb.com

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