Aluminum Price Index Falls 3.8% As Producers Face Painful Profit Losses

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The monthly Aluminum MMI® registered a value of 77 in September, a decrease of 3.8% from 80 in August.

Aluminum_Chart_September-2015_FNLThe 3-month London Metal Exchange aluminum price fell as low as $1,506/mt, the lowest level in more than 6 years as the continuous sell-off in Chinese shares is raising worries about a slump in aluminum demand from the world’s largest aluminum consumer.

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The latest trade data provided more negative news from China for the commodity sector, showing that China’s industrial slowdown is sharpening. Weaker demand from overseas buyers helped to further aggravate the trade slide in August.

Production Correction

Aluminum production in China fell 1.3% in July from a record in June, showing that the lowest prices in 6 years are forcing some smelters to cut output. Chinese smelters proposed to cut the less cost-efficient plants and delay the opening of new facilities. These cuts will take time to help aluminum prices as Chinese smelters already ramped up output this year with new lower-cost capacity.

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Like with other base metals, the low prices are hurting aluminum producers who are now facing one of the most painful periods in years. Century Aluminum Co. said in August that it would begin cutting production in October, blaming low aluminum prices caused by low-priced Chinese exports. The company’s stock price is down an astonishing 80% on the year to date.

What This Means For Metal Buyers

Like with other base metals, low prices will eventually cause producers to shut down capacity. However, with a bearish commodity environment, a strong dollar and weak global demand, it is hard to tell when prices will make a comeback. We could see more price declines before we see the bottom of this commodity market cycle.

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