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Aluminum stocks remain high, while prices continue to struggle. Both domestic and international aluminum inventories are at elevated levels, with the spot price of aluminum showing weakness throughout the year. As of December 21, the London Metal Exchange (LME) reported a 5.3% increase in aluminum stockpiles, reaching 5.32 million tons—an all-time high for the exchange.
With supply outpacing demand, some major financial institutions have taken a bearish stance on the metal. Barclays has advised investors to consider selling aluminum contracts, while Morgan Stanley has ranked aluminum as the worst-performing commodity among the 21 it tracks. The outlook for the metal is bleak, with analysts predicting continued oversupply in the coming quarters.
Barclays forecasts that global aluminum inventory could rise to 8.67 million tons by the end of 2013, driven largely by increased production from China and other major suppliers. China, in particular, has seen a surge in aluminum output, with primary aluminum production reaching 1.664 million tons in November alone—up 20.8% year-on-year. From January to November, total output reached 17.96 million tons, reflecting a 12.1% annual increase.
Domestically, Shanghai Futures Exchange inventories currently stand at 440,000 tons, up over 100% compared to the start of the year. In mid-November, the stockpile hit a two-year high of 460,000 tons. Meanwhile, the main contract price for aluminum futures has dropped nearly 10% this year, remaining weak throughout the entire period.
Social aluminum stocks are also at high levels, exceeding 1 million tons. According to the China Non-Ferrous Metals Industry Association, estimated aluminum stockpiles in the country may reach between 1.2 and 1.5 million tons.
The situation is further exacerbated by China's ongoing expansion of production capacity, especially in the western regions where low electricity costs and abundant coal resources have fueled rapid growth. Even though eastern production hasn't declined, overall capacity remains overextended. By 2012, China’s electrolytic aluminum production capacity had already reached 28 million tons, and it is expected to surpass 30 million tons in 2013.
With weak downstream demand and rising inventories, the imbalance between supply and demand has kept aluminum prices under pressure. Since the second half of 2011, domestic aluminum prices have been on a downward trend, leading to significant losses for many electrolytic aluminum companies. Most have struggled to remain profitable.
In response, the State Reserve Bureau initiated an aluminum storage program from November 29 to December 29, totaling 160,000 tons. However, compared to the millions of tons in stock, this move appears insufficient to address the broader oversupply issue.
Most institutional reports suggest that China’s aluminum market will face even greater oversupply pressures next year due to low energy costs in the central and western regions. Companies in these areas are likely to face another tough test. In the medium term, aluminum prices in China are expected to remain weak.