Aluminum may trade as low as about $1,000 a metric ton, the lowest since at least 1986, in what will be the worst year for European demand in more than a decade, according to Barclays Capital. The 15 percent rebound from a low this year of $1,251 a ton reached on Feb. 24 is unjustified, analysts including Gayle Berry wrote in a research note published yesterday. Government efforts to sustain output and save jobs from China to Venezuela are also preventing a necessary reduction in supply, it said. “Governments are propping up smelter output,” the analysts wrote. “This is very bad news for the health of the aluminium industry. Unless production is cut more aggressively in other locations, it is in danger of building a stockpile so large it might take years to work off.” Aluminum for immediate delivery has risen 10 percent in the past month to $1,426.75 a ton as of 12:23 p.m. in London even as stockpiles monitored by the London Metals Exchange expanded to a record 3.45 million tons. Inventories are triple the level of a year ago as demand from manufacturers and builders has slumped. Barclays forecasts an average price of $1,425 a ton this year, from $1,507 in 2008, and a surplus of 1.056 million tons. “We do not think that prices have bottomed yet and are looking for a test of new lows somewhere around $1,000 a ton,” the analysts wrote in the metals report. The recent broad rebound in base metals, a result of some investors buying back in “a heavily shorted market” and on prospects of purchases by China, was also overdone, they wrote. The price gains are discouraging producers from cutting output. “Support in the form of production cuts has all but disappeared with higher prices enabling some producers at the margin to hold on for a little longer,” the note said. “For markets in surplus, like aluminum and nickel, this is particularly worrying.”

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