The price of aluminium dropped to an almost two-year low last week on word of an expected drop in demand due to weak factory production in the People’s Republic of China.
Prices at the London Metal Exchange (LME) fell to US$2,300 per metric ton on Thursday, the lowest the value has been for 16 months. The fall came the day after an independent survey of China’s industry recorded the first activity contraction in three months.
Additionally, almost 70 metro areas in China reported a drop in home prices, which was the highest number so far since the beginning of the coronavirus pandemic.
Copenhagen’s Saxo Bank strategist Ole Hansen elaborated on the situation in a Reuters article.
“Industrial metals are taking a beating. The growth angst is most certainly having a profound impact across markets and reducing risk appetite once again.”
He continued by saying the situation could worsen in the coming weeks due in part to European banks’ plan to raise interest rates later this week. The situation has sent many investors running for cover.
“The supply side in metals could still be equally challenged, but right now the focus is on the risk to demand from central bank actions.”
An unidentified Chinese trader told Reuters said the price free-fall could slow soon, however.
“High overseas inventory and an open arbitrage window could mean rising supply in the Chinese market later this month.”
Traders initially sought bullish positions in aluminium and other base metals due to production cuts occasioned by higher power prices.