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Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

The new Range Rover Sport weighs 420 kg less than its predecessor. New fuel-efficiency laws in the U.S. will require cars to be lighter by 2016. This is good news for aluminum, which has taken a beating since the financial crisis. Rising demand has helped the world's biggest producer report a 4 per cent recovery in earnings before interest, tax, depreciation and amortisation in its first quarter from a year earlier on Tuesday. But UC Rusal and its peers are hardly shiny investments quite yet.

Demand for aluminum is expected to grow at least 6 per cent this year. Rusal reckons that the average car, a big consumer of the metal, now contains 150 kg of aluminum, up from 120 kg a few years ago. Meanwhile demand growth in China – two-fifths of total global demand – should be buoyed by the use of aluminum in electricity transmission lines. Low interest rates also buoy financial trading in the metal.

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But there remains a supply glut. Outside of China there are 10 million excess tonnes of capacity. Inside China grants have encouraged investments in new capacity while old plants have not been idled. Only this year is China's excess capacity growth expected to come under control. As a result, the aluminum price is still falling. After a one per cent increase in the first quarter, it has since fallen by an average 8 per cent to $1,886 (U.S.) per tonne. Rusal's cash cost of $1,970 per tonne means it can only keep its head above water because of the premiums its buyers will pay for fast delivery. Indeed, as much as a fifth of total global production outside of China remains loss making on a cash cost basis. In China, this proportion is as high as 35 per cent.

Nor is focusing on producers at the low end of the cost curve so easy – cash costs vary dramatically between assets. Meanwhile, the price premiums that producers can command differ too. The industry is trying to cut production. Rusal and Alcoa are idling plants; China has cut 1.2 million tonnes of capacity so far this year. But the industry needs to go further to bend back into shape.

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