Aluminum climbs as Alcoa shrinks capacity on China export deluge

Aluminum notched higher after Alcoa Inc., the largest U.S. producer, announced reductions in smelting and refining capacity, in a latest response to Chinese export deluge that have created a global surplus and driven prices to the lowest level in more than six years.

The metal used to make everything from aircraft to window frames and cans climbed as much as 1.5 percent to $1,516 a metric ton, the highest level in a week, after the New York-based company said it will reduce smelting capacity by 503,000 metric tons and alumina refining by 1.2 million tons. The measures will be completed by the end of next quarter.

Prices have slumped 27 percent in the past year after Chinese shipments surged to a record as new low-cost capacity started in the world’s biggest supplier. Goldman Sachs Group Inc. says producers face the longest period of pain in a generation with increasing surpluses through 2018. Dwight Anderson, founder of hedge fund Ospraie Management LLC, has described the metal as “miserable,” probably leading to closures and bankruptcies.

“The production cuts boosted the market,” Xu Maili, an analyst at Everbright Futures Co. in Shanghai, said by phone. “The move could have a positive impact on Chinese smelters as they can make more money by exporting metals. That may mean that the glut lasts longer.”

The increase in prices helped producer shares. Vedanta Ltd., India’s largest aluminum and copper maker, gained as much as 4.1 percent and Hindalco Industries Ltd. added 3.8 percent in Mumbai.

Aluminum output in China expanded 12 percent in the first nine months as the country’s economy grows at the weakest pace in a generation. Smelters shipped surplus metal onto world markets with exports surging 18 percent through September. A cut in power tariffs soon may give producers a further boost, three people familiar with the matter said last week.

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