Aluminum Halts Advance After Group Warns on Demand Destruction

(Bloomberg) -- Aluminum slipped after climbing to the highest since 2011 on Tuesday as a Chinese industry group warned the metal’s dramatic rally wasn’t supported by market fundamentals and could deter buyers.

Supply isn’t in a notable shortfall and consumption isn’t strong enough to warrant such high prices, the China Nonferrous Metals Association said in its newsletter. Aluminum may retreat quickly once the high prices impact demand and substitutions emerge, it said. 

Aluminum has jumped nearly 50% over the past year as a rise in consumption due to the global economic recovery coincided with output restrictions in China, the world’s biggest producer. The energy-intensive industry has been targeted by Beijing as it seeks to conserve electricity and curb emissions, while a seasonal power crunch has dented production. 

Aluminum fell 1% to settle at $2,690.00 a ton on the London Metal Exchange, after dropping as much as 2.1%. Prices fell 1.5% on the Shanghai Futures Exchange. Most other base metals also declined, with copper down 1.9% in London, after a Caixin gauge showed contraction in factory activity in China last month. Lead advanced.

“Base metals prices continue to look at odds with the weaker survey data out of China,” Capital Economics commodities economist Kieran Clancy said in an emailed note. 

• Speculators shouldn’t underestimate the determination of Chinese authorities to rein in raw-material prices, the nonferrous metals association said. Commodity prices are likely to come under pressure as monetary policy is tightened around the world, it said.
• Beijing on Wednesday offered a third batch of metals including aluminum, zinc and copper from its state reserves on Wednesday. The sales have so far not had much of an impact on prices or inflation, with many analysts forecasting metals markets will remain tight in the coming months.

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With assistance from Bloomberg