According to the World Bureau of Metal Statistics' most recent report, the market surplus for primary aluminum between January and September 2012 was 488,000 tonnes which follows a surplus of 1,871,000 tonnes recorded for the whole of 2011.
Production in January to September 2012 rose by 835,000 tonnes from the same period in 2011 and following on from a 3.1 million tonne increase over the whole of 2011 suggesting a sharp slowdown in production growth.
The WBMS reports that while production in the EU27 fell by 17.8% and NAFTA output fell by 2.3% demand also fell with the EU27 down by 12.1% compared to 2011 even as global demand rose by 3.6% during the first 9 months of the year compared with the 2011 period.
According to Andy Home in Reuters, China meanwhile has continued to expand production, aided and abetted by the Chinese state in a variety of forms. Chinese production has continued to rise up 15% in October this year over October 2011 taking the annual rise to 10 percent so far.
The SRB has recently held the first of three or four tenders each intended to buy up to 100,000 tonnes of primary aluminum at premiums of USD 100 per tonne over the domestic price. In itself this move will not bail out established higher cost smelters like Chalco which have been losing money for the last twelve months but it is hoped this will send a signal to the market to shore up prices.
Beijing is right to be concerned according to the article the country is awash with inventory, some 2 million tons according to Macquarie, only a small part of which shows up on the SHFE inventory. Meanwhile, inventory builds elsewhere the addition of a net 56,725 tonnes this week into Detroit brought the LME to a record 5,172,500 metric tons. The location of the delivery suggests that even though US smelter closures this year have been modest, the market is still in surplus.
Reuters believes the low-hanging fruit of smelter closures in the West has already happened, and with the support of steep physical premiums available to producers selling on the spot market, further large scale closures are unlikely. With Beijing and provincial governments so actively supporting Chinese smelters, it is unlikely any reduction in capacity will occur in the world's biggest producer.
Draw your own conclusions on the aluminum price next year excess supply equals strong forward curve, equals strong financial buying, equals tight physical market, equals limited smelter closures and so it goes on.
