Chinese Production Keeps Aluminum & Other Commodity Prices Down

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Posted: Mar 19, 2013

While prices in industrial commodities such as copper, iron ore, and especially aluminum may vary slightly month to month, according to economists, the prices should stay low for the foreseeable future. Even as selective economies and manufacturing bases improve coming out of the worldwide downturn, Chinese overproduction of these metals and large stockpiles should prevent any rapid cost increase.

China's copper production has increased by 12 percent for first two months of 2013 and inventories are at their highest since 2010. Earlier in the year, both Goldman Sachs and JPMorgan Chase forecast a decline in prices for iron ore, possibly through the year of 2016, before a rebound in prices occurs.

China has been producing all out over the past decade, despite recent slow downs in their economy and hints of a housing bubble. The result is a glut in the stockpiles of these metals and a decline in the prices. This is especially true with aluminum.

There has been a five year world wide glut in aluminum caused in part to China's heavy investment in aluminum smelters over the past decade. China views these smelters as a source of employment, as well as a way to keep coal miners that produce the coal employed. The bulk of these smelters' power comes from coal.

Observers feel that China might look to cut production of iron ore and copper, but leave quotas unchanged or draw back only slightly on aluminum to maintain employment levels in both mining and smelters.

Even with China's investment in state of the art smelters and producing all out, some firms are hesitant to import from Chinese stockpiles.

Ron Troxell, president of Fab Masters Company, Inc., a Marcellus, Michigan based custom manufacturer of aluminum CNC- machined and fabricated parts, sees the old issue of quality concerns trumping cost benefits in some people's minds.

"We have actually seen an increase in business coming back to the U.S.," he said.

Recent press about labor unrest, lack of quality control, growing hostile political talk, and logistical and other issues may contribute to ongoing cooling of attitudes towards Chinese ores.

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Tags: aluminum, aluminum prices, commodities, China, Chinese, copper, iron ore, manufacturing, smelters, economy