Aluminium may fall to $1,000 per tonne, the lowest since 1986: Barclays Capital

Aluminium may trade as low as about $1,000 a tonne, the lowest since at least 1986, in what will be the worst year for European demand in more than a decade, according to Barclays Capital.

The 15 per cent rebound from a low of $1,251 a tonne reached on February 24 this year is unjustified, analysts including Gayle Berry wrote in a research note published yesterday. Government efforts to sustain output and save jobs from China to Venezuela are also preventing a necessary reduction in supply, it said.

“Governments are propping up smelter output,” the analysts wrote. “This is very bad news for the health of the aluminium industry. Unless production is cut more aggressively in other locations, it is in danger of building a stockpile so large it might take years to work off.”

Aluminium for immediate delivery has risen 10 per cent in the past month to $1,426.75 a tonne as of 12:23 pm in London even as stockpiles monitored by the London Metals Exchange expanded to a record 3.45 million tonnes. Inventories are triple the level of a year ago as demand from manufacturers and builders has slumped. Barclays forecasts an average price of $1,425 a tonne this year, from $1,507 in 2008, and a surplus of 1.056 million tonnes.

“We do not think that prices have bottomed yet and are looking for a test of new lows somewhere around $1,000 a tonne,” the analysts wrote in the metals report.

The recent broad rebound in base metals, a result of some investors buying back in “a heavily shorted market” and on prospects of purchases by China, was also overdone, they wrote.

Output averaged 97,300 tn/day in February
World aluminium production averaged 97,300 tonnes a day last month, compared with 96,400 tonnes a day in January, the International Aluminium Institute said in a report on its website during the weekend.