China's Aluminum Over-Production Irks Indian Manufacturers

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Indian aluminum producers are worried that China is not moving fast enough to stop the overproduction of aluminum – a factor, they say, that is stopping the price of aluminum staying above the US $2,000 per ton mark on the London Metal Exchange (LME).

Those in the aluminum business, such as NALCO Chairman Ansuman Das, have gone on record to claim that the European financial crisis and sustained global overproduction, caused particularly on account of China’s drive towards self-sufficiency, were factors that were proving to be a hurdle in the way of the light gray metal staying above that mark.

Das was recently quoted by the Business Standard as saying that the metal’s poor price behavior was not derived simply from weaknesses in aluminum fundamentals – other market factors needed be considered as well.

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China has about a 45 percent share in the world’s aluminum production and many in India tracking the aluminum sector share Das’ opinion that that nation was not doing things like resting some of its smelters to stop the glut.

In February, global primary aluminum output was driven by record high production in China while the output in the rest of the world remained unchanged, no thanks to the Eurozone crisis.

All this seems to have irked the aluminum trading community here as well. Aluminum prices in India are fixed on the basis of the rates that rule on the international spot market, the rupee and US dollar exchange rates, and are also influenced to a large extent by the LME rates.

current aluminum prices - MetalMiner IndXObviously, depressed LME rates affect sentiments at India’s Multi Commodities Exchange (MCX). The metal has been trading between $1,787 and $2,200 a ton on the LME the past year or so, a far cry from the $3,271 per ton it had touched in November 2008.

Some optimistic traders do feel that the metal was nearing the support level. A similar trend is seen on the MCX, where the short-term trend for the metal is down, but if the price goes past the US $2 per kg mark, prices would then stabilize, according to these traders.

Continued in Part Two.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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