Demographics and Divergences in the Global Aluminum Market

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Dressed in a slick, slim dark suit and a dark tie to match, the dynamic face and voice of Harbor Aluminum, Jorge Vazquez, dove into the day’s events by presenting an overview of how demographics and the economic cycle will affect aluminum markets — and aluminum prices.

Vazquez boldly asserted that the best rates in demand growth in the history of this industry coming up. However, the balance between the old guard and the new, emerging markets should trend as expected, with Asia accounting for 86 percent of global aluminum growth, while only 5 percent in North America. Japan and Europe are conspicuously absent from the growth picture.

So far in 2012, the US Midwest spot premium has diverged sharply from the LME price, which doesn’t happen very often — generally the Midwest premium trendline follows the LME price. However, the last time there was a huge divergence in 2006, something was awry. Now again, the market finds itself at that point.

This is all related to the huge sea change the aluminum industry saw beginning in 2010 — the aluminum warehousing issue (or debacle, as some buyers undoubtedly see it.) Although there are varying levels of volume that warehouses allow to be shipped out depending on total volume, this is still rankling the industry.

The last big point Vazquez made surrounded the disconnect between how hard producers have it with rising cost of production for the metal, and how the finance sector are conversely making out like kings on storage fees, etc. This, added to the high aluminum inventories, makes the light gray metal the most attractive to short in this depressed global economy.

The aluminum price has only traded under $2,000 per ton in 1993 (Russian crisis, inundated world with metal), 2008 (post-Lehman Brothers), and now ($1,970). The last price point, added to the rest of the above, has, not surprisingly, pushed Jorge and Harbor toward a lower price forecast.

Check back in tomorrow for more conference coverage.

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