LONDON - A glut of aluminium due to floundering demand in China and elsewhere and soaring supplies will undermine prices of the metal used in the transport, packaging and construction industries, possibly until end-2023.

With manufacturing activity shrinking in China, the United States and Europe, the outlook for consumption of industrial metals looks sluggish.

Benchmark aluminium CMAL3 on the London Metal Exchange (LME) fell to a five-week low of 2 134 a metric ton on Wednesday, a drop of 20% since the middle of July.

"The demand side has taken over in terms of weakness on aluminium. It's not just China, it's all over. There are no shortages," said Bank of America analyst Michael Widmer, .

Hopes that Chinese demand would take off in January after China abandoned its strict "zero-Covid" policy have been disappointed and while the country's government has talked about stimulus, the lack of concrete detail is a headwind.

Also undermining prices is aluminium production in China, accounting for 60% of global production estimated at around 70-million tonnes this year, which has picked up alongside improving hydropower supplies in Yunnan province.

"China might consume all the aluminium it produces, but it's unlikely to absorb the surplus in the developed world," a trader at a commodities fund said. "You can see the weakness in the spreads on the LME, despite low inventories."

Low aluminium stocks MALSTX-TOTAL in LME registered warehouses often fuel worries about supplies, but not this time.

Spreads is a reference to the discount for the cash aluminium contract against the three-month contract CMAL0-3 which this week rose to $55.50 a ton, the highest since the financial crisis in 2008.

In the United States and Europe, central banks in a race to tame inflation have been hiking interest rates, which has caused industrial activity to stagnate.

This can be seen in the duty-paid premiums for aluminium on the physical market, which have tanked.

The U.S. AUPc1 premium at $475 a ton has tumbled 25% since the middle of March, while in Europe EPDc1 the drop of 15% to $286 a ton has been more modest, partly due to production cuts during the recent power crisis.

"We see little risk of (aluminium) smelters restarting in Europe at current prices," Morgan Stanley analysts said in a recent note.