LONDON (Reuters) – The price of aluminum has struggled in recent months as authorities in top producer China have failed to fully implement temporary winter smelter closures to slash pollution.
Lukewarm demand and new smelter projects in China are also poised to lead to more metal piling up, with inventories in the country already at record highs. China has seen sizzling growth in aluminum production over the past decade and now accounts for around half of global output.
Benchmark aluminum on the London Metal Exchange has gained 23 percent this year, but has failed to make further headway after touching a peak of $2,215 a ton in October, the highest level in more than five years. On Tuesday, aluminum – used in transportation, construction and packaging – was trading at around $2,090.
The rally in aluminum was largely driven by the announcement by the Chinese government of a crackdown on illegal aluminum capacity and temporary shutdowns of some production during the winter to curb pollution.
While around 3 million tonnes of annual illegal aluminum capacity has been shut down, there has been less success in suspending 30 percent of capacity from Nov. 15 to March 15 in 28 cities that suffer most from air pollution, said Eoin Dinsmore, principal consultant at CRU.