New aluminum forecast sees weak ingot prices
Barclays Capital outlook supported by Alcoa
By Tom Stundza -- Purchasing, 10/8/2008 3:14:00 PM
As a global economic slowdown crimps demand for virtually every commodity, aluminum prices have dropped to $1.01/lb this week, a 32% decline from an all-time high of $1.53/lb in mid-July. Prices for copper, zinc, lead, nickel and steel products also have tumbled. And that has led Barclays Capital analysts in London to reduce the price forecasts for most base and some precious metals.
“In markets such as zinc and nickel, the output cuts that now look necessary to balance the markets suggest a lengthy period of attrition and low price levels,” writes analyst Gayle Berry. “In tin, copper and aluminum, supply growth is already constrained by shortages of raw materials and other inputs such as energy.”
The Barclays Capital analysis sees continued weakness in U.S., European and Chinese aluminum consumption for the rest of 2008 and 2009 “on the assumption of continued weakness in key end-use sectors.” Berry also forecasts “a much weaker price environment for at least the next six months.” That’s why the Barclays Capital fourth quarter price outlook has been reduced to $1/lb, bringing the 2008 full-year average to the same $1.20 as 2007, followed by a drop to $1.18 in 2009.
Morgan Stanley analyst Mark Liinamaa, citing deteriorating market conditions, also has forecast lower aluminum prices. “Slowing global growth, risks with the financial crisis and rising aluminum stocks are weighing on aluminum fundamentals,” he writes in a note to investors. And this morning, in a note to clients, J.P. Morgan analyst Mike Gambardella assumes a fourth quarter LME average aluminum price of $1.04/lb and forecasts $1.22 for 2009.
Klaus Kleinfeld, CEO of Alcoa, says in a conference call with analysts and reporters that he now expects all of its North American markets to decline this year compared with last year--citing a 14% annual decline in auto production and weakness in the U.S. heavy truck and trailer market. He forecasts a 6% global growth for this year, down 2 percentage points from Alcoa’s previous projections. China's aluminum demand is forecast to grow about 15% this year, down from a previous forecast of 22%. Brazil, the rest of Asia and countries in Eastern Europe will continue to grow, but they are not significant enough to offset declines in the U.S. and in other European countries, Kleinfeld adds.
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