Aluminum prices in the domestic market may continue to weaken in the short term on increased supplies coupled with slowdown in demand.
Aluminum November 2008 contracts on the MCX fell by nearly 17% from Rs 113 per kg as on October 1, 2008 to Rs 93.75 on Tuesday on lack of fresh buying support amid reduced trading volume.
“Given the downtrend in global economy coupled with declining construction activity, housing and vehicle sales, the outlook for the metal remains dim. Huge stockpiles and lack of any demand signals are likely to keep prices under pressure,” a senior analyst with Karvy Comtrade said.
Aluminum is mostly used in aviation and cars, construction and packaging sector. Demand from all these sectors have slowed down largely.
“We expect prices to remain down in the short term. At MCX platform, the supports can be seen at Rs 85-88 levels per kg. Likewise, the resistances are at Rs 103 and then Rs 108,” he said.
Aluminum cash on the London Metal Exchange (LME) fell by nearly 20% to trade at $1,906.50 per tonne on Tuesday from $2,376.50 per tonne as on October 1, 2008. During this period, LME stocks increased to 1.55 million tonne from 1.33 million tonne. Interestingly, London prices are trading well below the $2,300-$2,400 per tonne levels, the production costs of many miners in China. It has resulted in to shutdown of major Chinese smelters.
World production is forecast to increase by 7% in 2008, to 40.9 million tonne. Expansions and new capacity in China, Venezuela, Iceland and Iran are expected to more than offset the effect of lower production in South Africa, New Zealand and the United Kingdom.
In 2009, world production is forecast to grow by a further 8% to 44.1 million tonne. Majority of this growth is again expected to be in China. By the end of 2009, China is expected to produce almost 40% of the world’s primary aluminum.