SPEciAL - ALU-WEB.DE

Analysts’ preview
According to the latest Reuters poll
in mid-October, analysts expect the
aluminium price to average near
USD1,900 per tonne in 2010. So far
this year, prices of the metal have increased
23% despite the overhang.
Not all industry experts are optimistic
about base metals performance
next year. Global prices for aluminium,
nickel and zinc will have to correct
to a lower value at some point,
to force producers to curb output and
eradicate massive surpluses, Julian
Kettle, head of research at renowned
industry consultants Brook Hunt,
told Reuters. Total reported stocks of
aluminium stood at 95 days of consumption
and are expected to peak
next year at 110 days. Brook Hunt
also estimates that around 95% of the
aluminium industry is cash-positive
when producing aluminium ingots at
current prices.
Brook Hunt expects aluminium
prices to fall from their current levels
in 2010 and predicts an average price
for next year of USD1,700 a tonne.
Looking at supply capacity versus
demand there is sufficient supply in
the system until 2014. There will be
a surplus of aluminium on the market
of 1.7m tonnes this year and 2.5m
tonnes in 2010, says Brook Hunt.
According to JP Morgan, aluminium
prices could rise further in the
short term as restocking across the
supply chain overcomes the impact
of excess inventory and capacity in
the market. Michael Jansen, Executive
Director of the commodities group
at the bank, said at the LME seminar
that a recovering industrial sector will
prompt aggressive restocking next
year, underpinning aluminium prices.
On the longer term outlook, however,
the world is looking at a lower pace
of consumption. “In 2010, demand
looks OK but not after that. Stocks
will tend to accumulate and prices
will be subdued”, Mr Jansen said.
The bank expects that aluminium
prices will average USD1,850 per
tonne in 2010 compared with
USD1,608 per tonne this year, while
by 2014 prices will have risen only to
an average of USD2,000. This company
sees the market surplus in 2009
ALUMINIUM · 12/2009
at 1.6 to 1.7m tonnes, while in 2010
the expected surplus will be 500,000
tonnes.
Rio Tinto, the world’s third-largest
mining company, stated: “The
outlook for a recovery in demand remains
mixed.” Rio warned that there
was the possibility of a W-shaped
scenario, where growth returns for a
few quarters before petering out once
more. This would slow down aluminium
shipments and make additional
contributions to an already high stock
level (Bloomberg).
BHP Billiton said it expects a sluggish
global economic recovery and
weaker commodity demand from
China, after the country has depleted
the inventories.
The President and CEO of aluminium
producer Alcoa, Klaus Kleinfeld,
told the German magazine ‘Capital’
some weeks ago: “The world economy
is now on its way to a sustainable recovery,
but the way up will be a slow
one.” He believes the uptrend is sustainable
but does not expect a quick,
jerky upward movement.
Svein Richard Brandtzaeg, CEO of
Norsk Hydro, predicted that demand
for aluminium would not rise before
the second half of 2010. Hydro has reduced
primary aluminium production
by 26% to 1.25m tpy this year, but the
current aluminium price of USD1,950
is still relatively low so that the company
is not considering increasing
output at present.
conclusion
There is a reasonable risk for the
global economy, and consequently for
base metals prices, that China’s economy
will decelerate next year, before
major Western economies recover to
an extent that will propel growth of
Chinese exports. This gap may temporarily
pull down Western economies,
suffocate growth and lead to another
year or two before growth becomes
sustainable.
The other gap that has already occurred,
and may be repeated again in
the near future, is that between the
stimulus measures adopted by governments
and real, sustainable demand.
The best example for this are
‘cash for clunkers’ schemes to boost
EcONOMicS
car sales, which however, rapidly
drop after the programme has ended.
Commodity prices, especially oil,
may have risen too early and too fast
for the current stage of the world
economy. The global economy would
benefit if the latest growth in commodity
prices were delayed for a year,
for example manifesting itself in the
third quarter of 2010. That would help
the economy to gather pace and warm
up for a real and fundamental recovery,
readying itself for the next supercycle.
This is why stronger growth of
the global economy may be delayed,
and the author suspects that a longer
period of volatility lies ahead.
The main support for base metals
prices in the first half of 2010 may
come from a falling US dollar, though
it can not be excluded that the average
aluminium price in euros in 2010 will
remain at the same level as this year,
or even lower.
Given the general climate in the
market place and the price prospects,
a sustainable global market recovery
cannot be grounded on hope and optimism
only, but must be based on
proven market indicators of a healthy
and recovering industrial business
trend, which has not been the case
so far.
The aluminium price will need
more time, perhaps at least eight
months, to stabilise and establish at
above USD2,000 a tonne. Some 80%
of world production capacity would
be profitable at this price. Increased
demand will cause significant restarts
of curtailed production worldwide,
indicating that the price will not rise
much above USD2,000 a tonne in the
near future, even if it gets that far.
Finally, it would spur renewed exports
from China, after importing
huge amounts of aluminium and other
metals in 2009, which would additionally
put pressure on prices. Consequently,
there may be years ahead
before the aluminium price reaches
new all time records.
Author
Goran Djukanovic is an aluminium market
analyst and consultant, located in Podgorica,
Montenegro; email: gordju@t-com.me
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