Aluminum Prices Continue to Fall After Reaching 10-Month High

Aluminum prices ended Monday’s session slightly lower, declining less than one percent as the commodity continued its recent string of losses. So far in May, its seems that for many commoditiesincluding aluminum, the “Sell in May and Go Away” adage is panning out.

A big reason for aluminum’s recent weakness is that investors are taking a breather after bidding the commodity up to a 10-month high in April. Recent losses followed an appreciated U.S. currencydecreasing the flow of international investors’ money into dollar denominated commodities such as aluminum. Aluminum prices have also been hit by some disappointing economic data out of China.

The truth is, even as aluminum prices surged in April, market participants were skeptical, saying that the aluminum market’s fundamentals did not support the commodity’s rally, leaving it prime for a price correction. While China’s demand for aluminum increased in March, year-over-year, overall the aluminum market remains oversupplied and this has prices poised for a correction. This correction could come sooner rather than later as China’s period of seasonal stocking comes to a close and we enter the summer lull.

A potential positive development for the commodity, however, is the potential for a change in the supply/demand fundamentals for the aluminum market. In their recent earnings report, major aluminum producer Alcoa (NYSE: AA) said that it expects the aluminum market to move into a surplus in 2016. If this does indeed happen, it will be a big change following years of aluminum oversupply. This projection follows some major supply cuts from top aluminum producers and Alcoa’s expectation that aluminum demand will increase by 8% in 2016.

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