Fears that the ongoing sovereign debt crisis in Europe could materially derail global economic growth has prompted a commodity sell-off over the last couple of months. Leading prices lower have been the key industrial metals - copper, nickel, lead, zinc and aluminum - all of which have retreated materially from their recent April highs.
But could the recent plunge in metals prices, and the shares of companies mining and producing these commodities, be a bit overdone? In the case of aluminum and the shares of aluminum producers, the answer could be yes.
China Moves To Curb Aluminum Production
After falling roughly 17 percent from their April highs, aluminum prices have now fallen to below the cost of production in China, a leading aluminum producer. That, plus the fact that the Chinese government recently boosted electricity prices for marginal aluminum producers in a bid to curtail excess production, will likely have the desired effect of closing down a lot of excess capacity - thus raising prices.
