Sumitomo Corp. (8053), Japan’s fourth- largest trading house, raised its forecast for a global aluminum surplus to the highest level in two years as demand from China, the biggest consumer, won’t be enough to absorb new capacity.
Supply will outpace demand for a seventh year by 866,000 metric tons this year from 760,000 tons in 2012, said Shingi Yamagiwa, manager of light metals trading at Sumitomo, which has stakes in smelters in Australia, Brazil, Malaysia and Indonesia.
Aluminum, used in cars, packaging and houses, has declined 11 percent in the past year, driving top producers Alcoa Inc. (AA:US), Rio Tinto Group and United Co. Rusal (486) to cut output. Inventories in the main trading regions of China, also the largest producer, probably climbed to a record, according to data provider SMM Information & Technology Co. Manufacturing growth in China unexpectedly slowed last month, a signal its economic recovery may be losing steam.
“China alone will have a surplus of about 510,000 tons this year after years of smelting capacity expansion,” Yamagiwa said in an interview yesterday. China accounts for 46 percent of global supply and 45 percent of demand, according to Sumitomo.
Global smelters’ average production cost is $2,164 a ton, Yamagiwa said. Three-month aluminum on the London Metal Exchange rose 0.5 percent to $1,963 a ton at 3:29 p.m. Tokyo time. The contract for delivery in June on the Shanghai Futures Exchange climbed 0.4 percent to 14,940 yuan ($2,329) a ton.
About 30 percent of capacity in China is loss-making at current prices and producers will have to cut output sooner or later, United Co. Rusal, the largest producer, said on Feb. 25.
China Power Investment Corp., the country’s second-largest producer by capacity, plans to eliminate as much as 300,000 tons of obsolete aluminum capacity out of 2.7 million tons, President Lu Qizhou said yesterday.
Rusal will cut 300,000 tons of existing capacity in 2013, compared with 4.2 million tons produced last year, the company said on March 4. Lower output will be maintained for three years unless prices recover significantly, said Oleg Mukhamedshin, director of strategy and business development.
The average aluminum price on the London Metal Exchange in 2012 was 15 percent lower than a year earlier on the global supply glut. Global output will exceed demand by 1.82 million tons this year from 1.49 million tons in 2012, Barclays Plc said on Feb. 15.
Stockpiles tracked by the LME climbed to a record 5.24 million tons on Dec. 21, according to bourse data tracked by Bloomberg. The holdings stood at 5.19 million tons yesterday. Inventories tracked by the Shanghai Futures Exchange rose to 482,408 tons last week, the highest level since November 2010.
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