If recent industry talk is any indication, it looks as though everyone may as well have curved horns on their head — because the aluminum bulls are out in droves right now.
I attended the Institute for Scrap Recycling Industry (ISRI)’s Commodities Roundtable 2012 here in Chicago, and several aluminum industry players at the conference kept foreseeing supply deficits and talking up strong demand. (Even aluminum expert and noted bull Jorge Vazquez of Harbor showed up, and although he wasn’t technically attending or speaking at the proceedings, it added to the air of bullishness.)
To top it all off, Oleg Deripaska, Rusal’s chief executive, just wrote an opinion piece for the FT, sprinkling his bullish outlook for the metal that his behemoth company produces all over the pink digital pages of that venerable publication. (Of course, Deripaska’s/Rusal’s bullishness is a given; that’s pretty much a prerequisite for producers.)
“I am confident that, despite the pricing pressures, the prospects for the industry remain attractive,” Deripaska writes, “with structural increases in demand expected from emerging markets as well as global economic recovery that will support the outlook for commodities.”
This seems to be the general line — that downstream construction, transportation and aerospace industries, seeing much slower but still tangible growth in the US, China and emerging markets, will continue receiving orders.
Nick Adams, a VP at the Aluminum Association, echoed this on the ISRI panel, noting that North American auto build is higher and both residential and non-residential US construction spending is up 9.3 percent for the first seven months of this year.
Bankers’ forecasts are also reflecting the “still good-but-not-great” sentiment. BNP Paribas lowered its world base metals demand growth forecast to 3 to 4 percent from 4 to 5 percent in 2012, according to a report by Reuters, but expects growth to accelerate modestly to about 5 percent in 2013. “For all the talk of the slowdown, both cyclical and structural, in China, base metals demand there is still growing; it is just growing more slowly than hitherto,” analyst Stephen Briggs said in a note to clients, noted by Reuters.
Where to Go From Here?
Both Deripaska and Tim Hayes, an analyst for Davenport & Co., based in Virginia, point to aluminum premiums as the telltale sign of fundamental demand. They continue rising, with premiums in the US and Europe reaching upwards of $210 per ton above the LME price. (Hayes put out a bullish price forecast, calling for average aluminum prices to increase each year from 2013-2015.)
Whereas Deripaska calls for capacity cuts as the first major step in “the right direction” for the aluminum industry (likely directed at China’s smelter expansions), Hayes, others on ISRI’s aluminum panel, and a large portion of ISRI’s members that deal with scrap and primary metal buying are most concerned about how financing deals cloud the visibility of where real demand and available supply actually are.
Davenport, Hayes’ firm, thinks the stock financing game will end gradually, not abruptly: “It won’t flood the market,” he said, “but it will drip into the market to show a gradual headwind for aluminum prices.”
If the stock financing situation did go away today, it would be interesting to see just how flooded the market would get with aluminum — somehow I doubt the US and global economic climate would support the metal enough to keep the pendulum from swinging full-speed in the other direction.