Aluminum futures fell Thursday as China’s decision to remove an export tax on the metal triggered worries about a larger global glut of supplies.
The London Metal Exchange’s three-month aluminum contract ended down 1.6% at $1,777.50 a metric ton at the PM kerb close.
Beijing abolished a 15% export tax on certain types of aluminum rod and bars to help exporters and boost economic growth. However, the move stoked fears that the zero-tax policy would lead to a flood of aluminum exports from China into the world market. China is the world’s largest producer of aluminum.
Though analysts estimate the tax change affects a relatively small amount of the metal, “the market was already quite bearish, and that additional news combined with the sentiment saw the metal prices come under pressure and continue to grind lower,” said Leon Westgate, a commodities strategist at ICBC Standard Bank in London.
Aluminum and other base metals were also weighed down by weak economic indicators in China and the U.S.
In April, the preliminary HSBC Purchasing Managers Index for China fell to 49.2 from 49.6 in March–below economists’ expectations and the lowest level in 12 months. A reading below 50 denotes contraction from the previous month.
In the U.S., sales of newly built homes in March fell 11.4% from February, marking the sharpest drop since July 2013. Economists surveyed by The Wall Street Journal had predicted a 3.5% decline.
But copper, a main industrial metal, managed to rebound off one-month lows. The May contract on the Comex division of the New York Mercantile Exchange gained 1.1% to settle at $2.6940 a pound.
“The market fundamentally is in a better situation than most people would think,” Mr. Westgate said. “Demand is coming up and the premium (between Chinese and world prices) is picking up, which is a welcome change.”
Settlements (ranges include pit and electronic trading) Apr $2.6980, up 2.85 cents; Range: $2.6655-$2.6980 May $2.6940, up 2.85 cents; Range: $2.6475-$2.7025