Analysts: Aluminum Market Will See Shortage By End Of Year

The world aluminum market is expected to slip into a deficit of about 100,000-200,000 tonnes by year-end, based on a stronger-than-expected Asian recovery and healthy U.S. and European economies, according to analysts. They say they expect market fundamentals to remain strong, with prices surging to US$1,600-1,700 per tonne by year end. Analysts pointed to Asia as the key to the recent recovery in aluminum prices to its current 21-month high of $1,558. They noted that Asian demand has turned around significantly in the last several months, a lot faster and stronger than most had anticipated. "We're seeing an expansionary phase of the global economy," says Fred Demler, minerals economist with ED&F Man International. James Southwood, president of Commodity Metal Management Co., says that equally as important as the rebound in Asian recovery is the continued strong U.S. economy. "The U.S. economy continues to get better, not worse," he said. "This is one of the main factors that is having a really big impact." Demler notes that other bullish factors supporting the stronger aluminum market are limited production, a slowdown of Russian sales, a strong automotive market, the possible consolidation in the industry, and a tightness in alumina supply. A shortage of alumina is helping to underpin the aluminum price rise. An explosion at Kaiser Aluminum's Gramercy., La., alumina refinery, which has taken 1 million tonnes per year of alumina out of the market since early July, coupled with a return of Chinese consumers to the market, is causing spot alumina prices to strengthen. In addition, the possible mergers in the aluminum industry "are definitely a bullish feature," Demler says. "It concentrates supply in fewer hands." However, Southwood says he finds it hard to characterize the consolidation as positive or negative. He anticipates the mergers to benefit shareholders and "not impact the basic price of aluminum over time."