(Bloomberg) — When aluminum demand last contracted during the financial crisis and unwanted metal started flooding into warehouses, it took more than a decade to work through the glut. Now, the market is bracing for another sharp increase in inventories as demand growth grinds to a halt.
Aluminum has tumbled to a two-and-a-half-year low as slowing global growth and the U.S.-China trade war hurt demand for the metal used in airplanes, automobiles and beer cans.
While stockpiles tracked by the London Metal Exchange fell to their lowest since 2007 last week, traders say inventories are building in the physical market as weaker order books leave consumers with more metal than they need.
That leaves traders preparing for a potential rebound in exchange stockpiles as the weakest demand growth since 2009 and tightening spreads encourage deliveries into warehouses. As was the case in the financial crisis, the supply imbalance could be exacerbated by producers who are loath to curb output in the short term, due to the heavy costs involved in bringing mothballed production lines back into service.
“In terms of all the economic indicators we’re looking at, everything is pointing to a further downturn,” Kamil Wlazly, an analyst at Wood Mackenzie, said on the sidelines of the Fastmarkets International Aluminum conference in Athens. “Next year could potentially be even worse because we don’t think the market has bottomed out yet.”
For the rest of this article: https://www.bloomberg.com/news/articles/2019-09-29/aluminum-traders-get-deja-vu-with-demand-at-weakest-in-decade