Primary Al Supply Loosens in China, Tight in Other Asian Countries

Supply and demand balance of primary aluminium is remarkably loosening in China. Primary aluminium inventory held by Shanghai Futures Exchange (SHFE) has expanded by 40% to 255,000 tonnes in late 2 months. Aluminium smelters in China have eased their output reductions since August.

Chinese domestic demand for primary aluminium maintains steady thanks to the governmental economic stimulation measure. Meanwhile, domestic aluminium smelters turned to increase their productions in response to the demand growth and the market price recovery. SHFE aluminium inventory jumped by 27,800 tonnes (12%) in the latest week.

Japanese trader source indicated Chinese smelters’ production had declined to the level as low as 11 million tonnes per year in March-April 2009 but the current operation is reaching the level as high as 13-14 million tonnes per year.

In contrast, primary aluminium supply is tight in other East Asian countries such as Japan and South Korea. Several trader sources analyze one factor is major smelters’ wide output reduction while another factor is that most of aluminium inventory at London Metal Exchange is currently tied up for speculative purposes and spot trading volume is significantly decreasing.

Spot premium in Asian region stays as high as $ 120-130 per tonne. Market players forecast the supply keeps tight and the spot premium maintains high within this year.