Aluminum is a major industrial metal in India and occupies second slot in terms of production and consumption, after steel. Globally, India is the fifth largest producer of aluminum after Australia, Guinea, Brazil and Jamaica. Aluminum, as a value-added commodity, finds a wide range of uses. It is extensively used by the automobile, aviation, consumer durables and construction sectors. Domestic prices are closely pegged to prices prevailing on the London Metal Exchange (LME). According to the Multi-Commodity Exchange of India, aluminum performed much better than the other metals like Copper and Nickel. However, since July 2008, the metal has started feeling the heat of the ongoing global credit crunch by way of falling demand and rising inventories. According to the data from the LME, the metal was in surplus of 0.76 million tons during the first half of 2008, and the inventories have reached 1.5 million tons currently. These factors have in fact lowered the prices of aluminum by 27% since January 2007. The prices, which appeared to head northwards from January 2008, have again reversed since August 2008. These developments are indeed causing anxiety for the Indian aluminum producers as well. The subprime crisis has globally led to a liquidity crunch and created an uncertain environment for the demand of commodities, including aluminum, which has also led to an inventory buildup at LME. Consequently, LME-aluminum prices have corrected by more than 50% in the last couple of months and currently trading at $1,900-2,000/ton, which is even lower than the marginal cost of production for most of the high cost producers. The ongoing global credit crunch is expected to affect the overall development in several major economies like US and Europe, which are already feeling the pinch of their economic growth slowing down. China, which is a major producer and consumer of commodities, is also expected to slow down in the next couple of years. Consequently, the Infrastructural developments and the corporate capex would take a beating and affect the demand for aluminum globally.
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