The Chinese Ministry of Land and Resources said this week it won’t allow any more new projects in these sectors. Noting that all requests for construction of new capacity would be rejected.
The reason is supply. The Ministry noted that mined products associated with these sectors have “serious surpluses”. And therefore no more new production is required or desired
The announcement comes at a time when the aluminum industry needs some good news.
Speculation is running rampant that new London Metal Exchange storehouse rules will have a dampening effect on prices for metals like aluminum. (Although as I discussed last week, the LME themselves say the effect of the new rules may be the exact opposite.)
Bearish sentiment over aluminum has increased to the point where major producer Alcoa is the most-shorted stock on U.S. exchanges. There’s a lot of people out there seeing dark days ahead for this metal
But announcements like the Chinese ban on new capacity tell a different story. That low prices may be curing low prices. Taking some of the downward pressure off this market. And maybe even setting the stage for a rebound.
You’d expect such corrective measures from a sector where today’s prices are very close to the marginal cost of production for the industry.
An important consideration for short-sellers and long buyers alike.