Primary Aluminum Price Firm but Semi's Market Still Slack

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Alcoa may have posted good third quarter results and the aluminum price has certainly rebounded well from the lows at the start of the year but demand for semi finished metal appears to remain depressed. A boost in automotive demand from the cash for clunkers program and some tentative restocking have stabilized demand levels and even caused an uptick that has allowed producers of flat rolled products to make modest price increases. But supply is being controlled more by capacity restraint than strongly rising demand and there is no evidence of distributors or end-users coming back into the market to re-stock in a meaningful way.

Extrusion mills are having an even more depressed time with little sign of an increase in demand this side of the New Year. The extrusion market has been on a slide for 18 months according to Metal Bulletin. Automotive demand is likely to drop back as stimulus programs come to an end and construction is still depressed. Aerospace is on a medium term downward trend with little expectation for a return to growth before 2012.

The primary ingot market is actually tighter then the massive visible stock levels suggest, a situation that forms the premise on which Harbor Intelligence is predicting an average of US$2,600 per metric ton and possibly as high as US$3,000 per metric ton as demand jumps 18% next year. We would be very surprised to see the ingot price at those levels but Harbor have a good track record so let’s see. For now aluminum has stabilized in the $1800-1950 per metric ton range on the LME and appears settled. Dollar weakness is not dramatically impacting the price and more capacity is likely to come on stream in the Middle East and China next year to meet any increase in demand. Meanwhile semi’s producers are caught between weak demand, less than satisfactory capacity utilization and an anemic return to growth in the OECD. In such conditions, a rise in extrusion mills value-add premiums is unlikely before late Q1 2010, whereas rolled products may go for a January rise if current increases stick.

–Stuart Burns

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