Where Global Aluminum Prices Are Headed

by Taras Berezowsky on May 21, 2012

Style:    Category: Metal Prices, MetalMiner IndX, Non-ferrous Metals

MetalMiner’s recent trend report on aluminum prices, the weekly Aluminum MMI®, showed that the global prices of the light grey metal have somewhat tempered their freefall — but uncertainty remains for the future price of aluminum, as we can see in Western and Asian markets.

LME spot prices have been dipping below $2,000 per metric ton — hitting $1,994 per metric ton on May 17 — which is putting producers worldwide on the wrong side of the production cost curve.

Speaking of which, Russia’s Rusal reported an 84 percent drop in its profits in the first quarter, forcing the company to consider “cutting 300,000 metric tons to 600,000 tons of smelting output in the next half” of the year, according to Bloomberg. “That equates to 6.4 percent to 13 percent of total capacity, which is 4.7 million tons, Rusal’s website shows.”

However, in the vein of some Chinese smelters, as MetalMiner reported last week, Rusal is sending mixed signals on the smelting-capacity closures by saying it intends to open two more energy-efficient smelters in Siberia next year. They’ll save on output costs, they say, by using cheaper hydropower.

Looking at Western production, lower energy prices may not improve the outlook for US aluminum producers. According to a Council on Foreign Relations blog, an IHS-CERA study concluded that “lower U.S. natural gas prices could potentially slow or even halt the slow decay in the aluminum industry. However, it is unlikely that they would change the economics of primary aluminum production enough, even in the long-term, to redirect investment here.”

MetalMiner’s Aluminum MMI® showed that transactional prices for both primary aluminum and billet in China fell last Friday from a week prior, and dampened demand could certainly be taking its toll.

In an article about record-high premiums being placed on Chinese aluminum imports, Reuters quoted Wang Weidong, senior analyst at Chinese state-backed research firm Antaike as saying that “China’s aluminum demand for end-use demand so far this year has been lukewarm because of government restrictions on the property sector, the main consumer for aluminum products.”

Weidong also added that stocks of aluminum products were currently high in the country.

If smelting capacity isn’t cut and Asian demand for aluminum remains cool, we could see sub-$2,000/ton prices for the metal for a while.

 

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