Why This Aluminum Price Forecast Will Make You Want to Hedge Your Buy

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“There’s nothing new under the sun — history is a good way of analyzing the future.”

With that, Jorge Vazquez began wrapping up this year’s Harbor Aluminum Outlook conference with his final forecast of the price of aluminum for the year. (If you’d like the exact numbers, check out Harbor’s value proposition — their analysis and forecasting is generally always solid.)

However, even Harbor’s forecast from last year was much too bullish for what the market is seeing now — severe undervaluation, with LME prices hovering around $1,950 per ton. The intelligence firm has had to reevaluate, and now doesn’t see prices rebounding for another few quarters at the very least. (For some drivers of the forecast, here’s an earlier post.)

The consensus view, according to Vazquez is that most other analysts see higher aluminum prices for 2013, and expect that $2,200 per ton is the lowest average price we’ll see.

To help with downside price risk, the conversation turns of course to hedging. With that, here is how buyers, sellers, manufacturers and investors at the conference responded to some questions about how they hedge their aluminum buys — or don’t.

After this session, I think we should hedge ___ of our 2013 open metal needs before September ends.

  • None — 13%
  • Up to 30% — 22%
  • Up to 60% — 48%
  • Up to 100 — 17%

What is your primary hedging goal?

  • To beat the budget — 5%
  • To lock in profits — 35%
  • To beat the competition — 0%
  • To minimize risk — 54%
  • To beat the market — 0%

How well-established is your company’s risk management toolbox in terms of different hedging components?

60% of respondents had only a few or none of the hedging tools listed in place.

Where do you see aluminum prices going? How is your company hedging against price risk? Leave a comment!

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