Aluminium slips to two-week low, supply overhang in focus

Aluminium prices fell to two-week lows on Monday due to worries about Chinese producers ramping up output and adding to the surplus being created by semi-finished products being remelted. Benchmark aluminium on the London Metal ended down 0.9 percent at $1,660.5 a tonne from an earlier $1,647, its lowest since September 28. China accounts for more than half of global aluminium production estimated this year at around 58 million tonnes. It makes more than it needs and exports the surplus.
"Production of primary aluminium is coming back in China. There is a surplus of aluminium semis, which are being remelted," said Carsten Menke, analyst at Julius Baer. "As inventories build, there will be pressure on prices, aluminium at these levels still looks quite expensive." Aluminium prices have rallied this year due to the appearance of a tighter market.
Assumptions that supply from top producer China would ease had been reinforced by falling stocks of aluminium in warehouses monitored by the Shanghai Futures Exchange (ShFE), which are down more than 75 percent since March to near 85,000 tonnes. Traders say aluminium's break of the 21-day moving average at $1,656 paves the way for losses to $1,638, the 55-day moving average and $1,630 the 100-day moving average. A break towards $1,600 could see funds with bets on higher prices selling, which would further fuel downward momentum.
Funds' net long holdings of aluminium on the LME on Friday stood at 151,393 lots or nearly 3.8 million tonnes, up almost 40 percent since the middle of September. Industrial metals generally were supported by a lower US currency, which when it falls makes dollar-denominated metals cheaper for non-US firms. Copper ended unchanged at $4,675 a tonne, near a one-month low of $4,623.25 hit on Friday. "Copper last week was hit by a double whammy of a rising dollar and weak trade data out of China," Barclays analyst Dane Davis said in a note.
"The trade data out of China are particularly worrisome, given the lingering questions of the sustainability of its growth following the spring's mini-stimulus." Copper's fortunes this week will again rely on China data including gross domestic product or economic growth, investment and industrial output due on Wednesday. Zinc was up 0.7 percent at $2,274, lead fell 0.4 percent to $1,989, tin slipped 0.1 percent to $19,425 and nickel fell 1.9 percent to $10,290.