Why Aluminum Missed Out on the Metals Rally

  • Aluminum prices on pace for sixth straight monthly loss
  • Industrial metals have rallied as mining companies cut output

Aluminum didn’t get the memo on the metals rally.

While an index of the six main metals traded in London is on pace for the first monthly increase since April, and gold and silver reach multi-week highs, aluminum is headed for its longest slump since 2009. The reason: China, the world’s biggest producer, is churning out more supplies, adding to the outlook for a global glut.

While other metals such as zinc and copper get a boost from announcements of cutbacks from producers including Glencore Plc, the news in aluminum is of rising Chinese exports. That helps explain why 58 percent of traders and executives picked aluminum as their “favorite short” in a survey by Macquarie Group Ltd. last week at the London Metal Exchange’s annual gathering.

Aluminum Falls as Metals Rally in October

Aluminum is down 16 percent this year, and U.S. premiums -- the amount added to LME supplies for immediate delivery -- are at a four-year low. BNP Paribas forecasts a 1 million-metric ton surplus for 2015, citing in an Oct. 8 report the need for more producer cuts, particularly in China. The Asian nation exported 350,000 tons of aluminum metal and products in September, up 2.8 percent from the previous month.

“The problem is the high stocks,” said Steve Hardcastle, head of client services for industrial commodities at Sucden Financial Ltd. in London. “Those stocks are now available. Warehouses won’t be competing for physical metal, which will be pushing down the premiums. We need production cuts.”

Premiums have fallen as new LME rules intended to ease warehouse queues erode incentives to keep the metal in storage. While premiums account for a small percentage of costs, they are vital for traders, who depend on the charges for part of their revenue. Further declines could force holders of the metal to flood the market with fresh supplies.

“There is not enough blood on the streets yet,” said Jeremy Goldwyn, a non-executive director at Sucden Financial Ltd. “There is not enough incentive for the people to cut back.”

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