China Aluminum Holdings Seen at Record, Boosting World Glut

Aluminum inventories in China’s main trading regions are estimated to have climbed to a record as supply growth outpaces demand in the largest user and producer, adding to a global glut of the lightweight metal.

Reserves expanded to 1.119 million metric tons from 750,000 tons a year ago, according to a survey of warehouses in four cities by data provider SMM Information & Technology Co. Stockpiles in six hubs including Shanghai increased to 1.156 million tons, according to Li Xun, an analyst at, researcher’s sister website, citing their survey.

The estimates add to signs that surging supplies from new capacity in China’s northwest are not being absorbed, and may weigh on aluminum, which has declined 7.7 percent in London in the past year. Global production will outpace demand by 1.82 million tons this year from 1.49 million tons in 2012, Barclays Plc said on Feb. 15, advising investors to bet on lower prices of the metal used to make autos, appliances and packaging.

“I have no doubt that the inventories will expand further,” Wang Chunhui, a Shanghai-based analyst at SMM, said in a telephone interview on Feb. 19. “Maybe it can exceed 1.2 million tons this year.”

Aluminum on the London Metal Exchange, which has lagged behind copper, tin, zinc and lead over the past 12 months, fell

1.1 percent to $2,080.75 a ton at 1:42 p.m. in Shanghai. Most-active futures on the Shanghai Futures Exchange, dropped as much as 1.3 percent to 14,890 yuan ($2,386) a ton, the lowest level since July 2010 and were at 14,910 yuan.

Four Hubs

Stockpiles in four hubs in China have increased to 1.03 million tons from between 750,000 tons and 800,000 tons a year earlier, Wen Junxiang, head of the research department at Guangzhou KT Commodity Information & Consulting Co., said on Feb. 19, citing the company’s research. KT estimates that the all-time high was reached in May 2010 at 1.24 million tons.

Stockpiles tracked by the LME, which does not have warehouses in China, climbed to a record 5.24 million tons on Dec. 21, according to bourse data tracked by Bloomberg. The holdings stood at 5.15 million tons on Feb. 20.

“What happened around the Chinese New Year holidays was the metal continued to be put into warehouses, but very little was moved out,” said Guangzhou KT’s Wen, referring to the weeklong national break that ended on Feb. 18. “The inventories are expected to hit new highs this year.”

Three Surveys

The three surveys include holdings in warehouses monitored by the Shanghai Futures Exchange, and the results account for more than 95 percent of China’s warehouse inventories, according to the companies. SHFE reserves climbed to 429,551 tons as of the week ended Feb. 8, 40 percent higher than a year earlier. The exchange, closed last week, will update the data tomorrow.

Barclays forecast China’s surplus will expand to 1.39 million tons this year, more than double the 674,000 tons last year. Supply from the second-largest economy may increase to

23.25 million tons in 2013, 12 percent more than last year and 24 percent higher than 2011, it said in the Feb. 15 report.

Production in China climbed to a record 1.76 million tons in December, with output in the northwestern region of Xinjiang rising to a record 122,247 tons, according to data from Beijing Antaike Information Development Co.

While China will have a surplus of 500,000 tons this year, there will be a deficit of 300,000 tons to 500,000 tons excluding the country, according to Moscow-based United Co. Rusal, the world’s biggest producer. China’s market may become balanced in 2014 or 2015, Director of Strategy and Business Development Oleg Mukhamedshin said in a Feb. 11 interview.

Declining Profits

Industry profits in China fell 92.7 percent to 930 million yuan last year as some smelters in regions with high electricity prices were forced to close, according to the Ministry of Industry and Information Technology. The ministry will target the elimination of so-called obsolete capacity this year, according to a review of the nation’s nonferrous metals industry posted on its website on Feb. 16.

Aluminum Corp. of China Ltd., the nation’s biggest producer, said on Jan. 30 that it will report a “substantial” loss for 2012, compared with net income of 238 million yuan in 2011. The company is set to release full-year earnings in March.