ALUMINIUM-Major market developments in May

Aluminum lost ground in May after initial strength but will draw support near term from tight physical supplies and the fact that prices are close to the break-even costs of

Chinese aluminum smelters.

"We're not bullish on aluminium, but the physical market is quite tight and the downside will be supported by the marginal costs of Chinese producers," said Macquarie Bank's Jim Lennon.

China is the world's top aluminium producer, accounting for around 40 percent of global output. The London Metal Exchange (LME) three-month aluminum price CMAL3 was last indicated at $2,613 a tone.

Another analyst said high power costs would support prices for the energy-intensive metal, and while he did not expect aluminium to soar, he predicted it would outperform copper.

The LME three-months copper price CMCU3 was last indicated at $9,189.25 a tonne.Despite tight availability, Fastmarkets analyst Will Adams still saw $2,300 as a potential downside target in the next month or so.Below are some of the more significant recent developments in production, stocks and prices that may continue to influence the direction of the market in 2011.

May 20 - Daily average primary aluminium output in April rose to 70,400 tonnes from 69,800 tonnes in March, provisional figures from the International Aluminium Institute (IAI) showed. Daily average primary aluminium output in China rose to 48,400 tonnes in April, compared with 45,600 tonnes in March.

May 19 - Russia's UC RUSAL (0486.HK: Quote) said it might cut its 2011 metal output forecast by less than 0.5 percent this year due to supply problems at two Siberian smelters.

May 18 - A Ukrainian court has nationalized ZALK, Ukraine's only aluminium smelter controlled by Russia's AvtoVAZ-Invest, part of the RUSAL group, the state prosecutor's office said. In April, RUSAL shut down production of primary aluminium at ZALK citing high electric power costs.

May 18 - UC RUSAL said it is keen to invest in Cameroon as part of its efforts to diversify its sources of bauxite, the firm said. Yakov Itskov, director of RUSAL's international division, cited a new government and a mining review in Guinea, and where RUSAL has a major operation, as potential threats to investors and reasons to look for new partners elsewhere.

May 13 - Alcoa Inc (AA.N: Quote) said it has signed an agreement with the China Development Bank (CDB) to collaborate on aluminium and related projects in China and abroad. It said the arrangement would focus on Alcoa partnering with Chinese companies on global expansion projects and developing China's domestic aluminium industry.

May 13 - The annual rate of primary U.S. aluminium production increased 13.6 percent to 1,965,172 tonnes in April from 1,729,662 tonnes in April 2010, and grew by 3.8 percent from March's annual production rate of 1,906,619 tonnes, the Aluminum Association said in its latest report.

May 11 - China produced 5,514,000 tonnes of primary aluminium in the first four months of the year, up 2.7 percent from year ago levels, according to the National Bureau of Statistics. Output of alumina rose by 12.4 percent over the same period to reach 11,195,000 tonnes.

May 10 - China's Ministry of Industry and Information Technology said it will close 600,000 tonnes of outdated aluminium smelting capacity by the end of the year. The move is part of a wider crackdown on 18 heavy and polluting industries.

May 6 - Alcoa said its joint venture aluminium project in Saudi Arabia is on schedule. First commercial production from the 740,000 tonnes per year (tpy) smelter is scheduled for 2013.

PRICES

Aluminium prices ended May at $2,675 a tonne, down from $2,767.50 the previous month. On May 3, aluminium reached $2,803, its highest since August 2008 on expectations rising electricity costs for the power-intensive metal would lead to further price rises.

But a rout across asset classes took its toll on the market and three-month prices fell. The market remained under pressure and dropped to $2,465 on May 23 before managing to steady and recoup some of the month's losses.

According to the latest Reuters poll [COMMODITYPOLL01] in January, aluminium cash prices CMAL0 are expected to average $2,484 a tonne in 2011 compared with $2,173 last year.

STOCKS

Total exchange stocks were at 5.024 million tonnes at the end of May, equating to around 41 days of demand. Of the end May total, some 4.691 million tonnes were held in LME warehouses, up from 4.611 million a month earlier.

Early declines in LME stocks were halted by heavy inflows around the middle of the month and by May 17 they had reached a record high of almost 4.712 million tonnes. Total visible stocks, including latest International Aluminum Institute (IAI) unwrought stocks were 6.538 million tonnes, down albeit slightly from 6.543 million a month earlier.

Estimated aluminum stocks at the Japanese ports of Yokohama, Nagoya and Osaka rose by 17,900 tones, or 8.9 percent, to 219,100 tonnes at the end of April from a month earlier, according to trading house Marubeni Corp.

An official at the company said that while deliveries to users picked up later in April, weak domestic demand could push up stocks in May.