Aluminum Industry Gets Pinched

    China is in need of many industrial commodities, but one that it can produce for itself is aluminum, and that is bad news for companies that provide the silvery metal.

    On Tuesday, the International Aluminum Institute restated its report of Chinese smelter output for January to a rise of 39% rather than its previously stated 35%, and it reported February output was up 40.3%. This is twice as much output growth as Prudential Equity Group analyst John Tumazos estimated. China's demand is growing, he noted, but the output is expanding even more quickly. Tumazos wrote in a client note that he wasn't sure why China needed so much of the metal, although one theory is that building and construction markets might use more aluminum in China. "Maybe they have some sort of affinity to aluminum construction materials," the analyst suggested.

     Whatever the reason, Tumazos has soured on the industry. He reduced his rating to "unfavorable" from "favorable" based on the increasing Chinese production. Furthermore, he reduced his estimate of U.S. aluminum use in 2007 "as most manufacturing activity measures in the U.S. are falling fast."

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