When aluminum demand last contracted during financial crisis and unwanted metal started flooding into warehouses, it took more than a decade to work through the glut. Now, the market is bracing for another sharp rise in inventories as demand growth grinds to a halt.
Aluminum has tumbled to a two-and-a-half-year low as slowing global growth and the US-China trade war hurt demand for the metal used in airplanes and automobiles. While stockpiles tracked by the London Metal Exchange fell to their lowest since 2007 last week, traders say inventories are building in the physical market as weaker order books leave consumers with more metal than they need.
That leaves traders preparing for a potential rebound in exchange stockpiles as the weakest demand growth since 2009 and tightening spreads encourage
deliveries into warehouses.
The slowdown in key sectors such as European car industry puts the aluminum industry on course for annual demand growth of 1% to 2% this year, according to Wood Mackenzie. Rival consultancy CRU Group expects an even worse year, with demand rising just 0.2% globally and contracting 1.2% outside of China, marking first decline in usage since financial crisis.