Aluminum Resumes Drop in London as Surplus Output May Increase

By Claudia Carpenter

Jan. 29 (Bloomberg) -- Aluminum resumed this month’s decline in London on speculation that surplus production of the metal will increase and add to record stockpiles.

Aluminum inventories in London Metal Exchange-monitored warehouses have almost tripled in the past year to more than 2.7 million metric tons, the highest since the contract started in 1978. Sanford C. Bernstein Ltd. today lowered its aluminum price forecast for this year to $1,700 a ton from $2,260 a ton.

“The delivery of metal onto exchange has been extraordinary,” London-based analyst Andrew Keen wrote in the report. “Worryingly, metal inventories do not show much indication of slowing.”

Aluminum for delivery in three months dropped $6, or 0.4 percent, to $1,360 a ton as of 8:35 a.m. on the London Metal Exchange. The metal has slipped 12 percent this year, the biggest decline among industrial metals on the exchange. Prices rose 1.9 percent yesterday.

Since October 2008, inventories have climbed more than 1.3 million tons, or 10 percent of quarterly demand, according to Bernstein.

“The sudden appearance of 1.3 million tons could potentially relate to an off-warrant stock financing deal that has reached its conclusion or been terminated as holders of metal have sought liquidity or wanted to exit their positions before prices fell,” Keen wrote. Off-warrants indicate metal will be withdrawn from LME-registered warehouses.

The LME index of six industrial metals rose 1.1 percent yesterday in line with gains in equities in Europe, Asia and the Americas stemming from speculation that U.S. efforts to support the banking system may spur investor demand. The U.K. benchmark FTSE 100 equity index fell 0.7 percent today while the Nikkei 225 index gained 1.8 percent in Tokyo.

Copper declined $65, or 2 percent, to $3,265 a ton, nickel dropped $125, or 1.1 percent, to $11,625 a ton and tin fell $345, or 3 percent, to $11,100 a ton. Lead dropped $2.75, or 0.2 percent, to $1,142.25 a ton and zinc fell $22, or 1.9 percent, to $1,123 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net