Shanghai Aluminum Drops By Limit as Inventories at 14-Year High

By Glenys Sim and Jae Hur

Dec. 3 (Bloomberg) -- Aluminum futures in Shanghai dropped by the exchanged-imposed daily limit, falling for a sixth day, after stockpiles increased to the highest in fourteen years as the global economic slowdown sapped demand.

Inventories monitored by the London Metal Exchange rose to 1.83 million metric tons yesterday, the highest since December 1994. Supplies on the LME have nearly doubled since the start of the year as aluminum prices fell 30 percent.

“There really isn’t much going for aluminum these days,” Yang Jun, analyst at China Futures Co., said from Chongqing today. “Even though we’re hearing about production cutbacks, there’s so much of the stuff out there.”

Aluminum for February delivery on the Shanghai Futures Exchange fell by 490 yuan, or 4 percent from the previous settlement price, to 11,710 yuan ($1,703) a metric ton, and ended the day at that level.

London Metal Exchange aluminum fell 1.5 percent to $1,675 a ton at 4:22 p.m. in Singapore, the lowest since September 2004.

Aluminum demand in China, the world’s largest user, may rise between 2 percent and 3 percent next year, the slowest consumption gain for the metal since 1997, according to Beijing Antaike Information Development Co.

This may force Chinese smelters to idle at least 4 million tons of production capacity, Antaike analyst Wang Feihong said Nov. 12.

“Under Pressure”

“Base metals prices remain under pressure” from rising inventories, Tobias Merath, head of commodity research at Credit Suisse Group, said in a note today. “Weak auto sales indicate that demand for metals is weakening fast” which will be particularly negative for aluminum, nickel and zinc, he said.

U.S. November auto sales declined 41 percent at General Motors Corp. and 31 percent at Ford Motor Co. Toyota Motor Corp. and Honda Motor Co. posted drops of 34 percent and 32 percent respectively. GM has said it may run out of cash by year-end as the recession curbs demand.

Aluminum became the second-most used material in U.S. cars in 2006, according to the Aluminum Association, a trade group. Each passenger car or truck in North America contained an average 319 pounds of the metal that year, up 16 percent from 2002, according to the group’s web site.

Among other LME-traded metals, copper fell 1.2 percent to $3,680 a ton, zinc dropped 1.2 percent to $1,155, and lead lost 1.7 percent to $1,070 as of 4:20 p.m. in Singapore. Tin fell 0.5 percent to $11,900 a ton, and nickel was little changed at $9,500.

To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net