SHANGHAI, Jan. 20 (SMM) – Chalco, together with over ten leading Chinese aluminum smelters planned to withhold a combined 1.2 million tonnes of aluminum inventories in a bid to boost prices, Shanghai Metals Market has learned.
However, SMM sees little chance that these smelters will retain such sizable inventories.
Tight liquidity at higher-cost smelters incurring losses makes it impossible for them to hold such huge volumes. Lower-cost smelters, though still profitable, are similarly ill-prepared to tie up such large volumes of cash in unsold inventories. Doing so right now is even more ill-advised, given the potential slump in demand coming around the Chinese New Year, February 19 this year, SMM understands.
While these smelters’ plan to withhold such sizable inventory may spur a quick surge in sentiment, this move will hurt the market in the long run by slowing the exit of less efficient capacity. Moreover, withheld material will eventually flow back into the market, prolonging the supply glut and distorting prices, Wang Chunhui, aluminum analyst at SMM said.
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