Aluminum inventories well ahead of demand

World aluminum inventories of 5.8 million metric tons at the end of October were 81% higher than the 3.2 million metric tons at the same time last year, the International Aluminium Institute (IAI) reports, indicating that global supply remains well out of balance with demand and explains the 36% slippage in annualized ingot prices. According to the latest-available IAI data, inventory continues to be well above 50 days of supply at current rates of consumption. And, annualized production was running at a pace of 39 million metric tons, up 20% from the February low of 33 million metric tons. That's why the 2009 annual average price for London Metals Exchange spot aluminum of 75??/lb compares with $1.17 in 2008. Analysts at Bank of America/Merrill Lynch Research say they "continue to expect days of supply to remain elevated as Chinese production continues to increase and underlying demand in U.S. and Europe remains weak." Harbor Intelligence says "China already has restarted all of the 3.48 million metric tons/year of capacity that was cut during the economic crisis and has even brought on to the table 1.32 million metric tons/year of output from new capacity." Analyst Paul Williams of CRU Groups writes, "We would caution against getting too excited about demand recovery outside China." Along the same lines, Bank of America/Merrill Lynch Research's global commodities team expects aluminum to lag other metals in a recovery, it is forecasting a 2 million metric ton worldwide surplus in 2010.