COMMODITIES:ALUMINIUM PRICES dropped to their lowest level for more than five years yesterday. The deteriorating outlook for demand was underlined by a further large rise in aluminium stocks held at London Metal Exchange warehouses.

The LME’s benchmark three-month aluminium contract fell 3.1 per cent to $1,420 a tonne, after touching $1,409, its lowest level since September 2003.

Aluminium smelters have been reducing output as spot prices have sunk below break-even costs for many producers. The production cutbacks, however, have been unable to keep pace with the fall in demand. As a result, aluminium inventories have greatly risen over the past year.

Yesterday, stocks of aluminium held at LME warehouses jumped 51,875 tonnes, taking them to more than 2.53 million tonnes and within touching distance of the record 2.66 million tonnes reached in July 1994. In addition, traders estimate China has aluminium stocks of at least 1 million tonnes, mostly held off exchange.

Leon Westgate, of Standard Bank, said that in spite of the growing list of production cutbacks, smelters still had much more to do if supply and demand were to be brought closer to balance.

Standard Bank, which expects an oversupply of 900,000 tonnes in 2009 and about 630,000 tonnes in 2010, said aluminium prices were unlikely to recover much ground this year, forecasting an average of $1,790 a tonne.

Among the other base metals, copper rose 2.5 per cent to $3,440 a tonne, nickel gained 4.1 per cent at $11,300 a tonne, zinc inched up 0.7 per cent to $1,260 a tonne, lead edged up 0.2 per cent to $1,172 a tonne, tin added 1.4 per cent to $11,050 a tonne.

Trading in most commodity markets was quieter than normal due to a public holiday in the US.

In energy markets, crude oil prices remained under downward pressure with ICE March Brent falling $2 to $44.57 a barrel.

Dealers are using Brent as a barometer for the global energy market as the front month Nymex WTI contract has disconnected with other benchmark crude prices.

In electronic trading, Nymex February West Texas Intermediate, due to expire at the close of trading today, fell $2.01 to $34.50 a barrel. March WTI lost $1.87 at $40.70 a barrel. – ( Financial Timesservice)