Shanghai Aluminum Declines to Two-Week Low on Rising Stockpiles

By Glenys Sim

July 17 (Bloomberg) -- Aluminum in Shanghai fell for a fourth day to a two-week low after global inventories jumped, signaling an oversupply of the metal.

Stockpiles of aluminum in warehouses monitored by the London Metal Exchange increased yesterday by 24,825 metric tons, the most since August 2006, to more than 1.1 million tons.

``There is no immediate supply tightness, LME stocks have doubled since late 2005 and now are well above 1 million tons,'' London-based VM Group analyst Matthew Turner said yesterday in a report. ``Chinese production capacity is still growing strongly and could reach 15 million tons in 2008.''

Aluminum on the Shanghai Futures Exchange fell as much as 1 percent to 19,170 yuan ($2,811) a ton, the lowest since July 1. The most-active contract traded at 19,195 yuan at 10:39 a.m. local time.

Aluminum for delivery in three months on the London Metal Exchange was little changed at $3,124 a ton at the same time, after dropping to the lowest in nearly three weeks yesterday. Prices rose to a record last week after smaller smelters in China, the world's largest producer, agreed to cut output as much as 10 percent.

``The news from China was extremely bullish, but it's not yet clear how long the voluntary production cut will last,'' Turner said. ``Probably not long if prices climb much higher. If the cutback lasts a year that could remove some 750,000 tons of aluminum from the world market, enough to wipe out twice this year's expected surplus.''

Among other LME-traded metals, copper rose 0.2 percent to $8,095 a ton, zinc gained 2.2 percent to $1,835, and nickel added 5.4 percent to $21,500. Lead slipped 0.8 percent to $1,950, and tin gained 0.7 percent to $23,400 as of 10:23 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net