Aluminium retreats amid concerns over supply, China output

Aluminium prices hit two-month highs before retreating on profit-taking as the spotlight returned to oversupply and expectations of rising output in China. Benchmark aluminium ended down 0.7 per cent at $US1679 a tonne. The metal used in transport and packaging had earlier touched $US1693, it highest since August 18.

Traders said that aluminium had in large part been boosted by funds that use trend-based models but that producer selling as prices approached $US1700 and offers at $US1695 had triggered the reversal.

Top producer China accounts for more than half of global output estimated this year at about 59 million tonnes. Its producers have been ramping up capacity this year, increasing expectations of a jump in output in the fourth quarter.

"These prices can't be sustained in the light of overcapacity in China and there is a huge supply overhang worldwide, despite falling LME inventories," said Commerzbank analyst Eugen Weinberg.

Stocks of aluminium in LME-registered warehouses have fallen more than 25 per cent since March to 2.12 million tonnes, which has tightened the LME market and boosted aluminium this year.

In reality, however, supplies are abundant and global inventories are estimated at about 15 million tonnes.

"The fundamental outlook for aluminium appears to be incrementally loosening (in the fourth quarter)," JPMorgan analysts said in a note, adding that demand growth of 7.2 per cent so far this year could slow to 5 per cent in the fourth quarter.

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