Aluminum prices are falling to six-year low
Analysts say global recession is bloating aluminum inventories
By Tom Stundza -- Purchasing, 1/26/2009 9:16:00 AM
The global recession, collapsing consumer and corporate confidence and plunging demand for industrial metals already have combined to drop the aluminum prices on the London Metal Exchange (LME) for January to date to 66¢, which would be the lowest monthly price since April 2003.
A consensus forecast of 14 analysts polled by Purchasing.com puts full-year LME aluminum prices at 79¢/lb, as opposed to a previous three-year average of $1.18. And, according to several analyses, an abundance of aluminum on the global market is fast becoming more visible and could depress prices even further than last Friday’s close of 59¢/lb on the LME unless producers shut more capacity to wipe out the growing surplus.
“At current prices most production is not profitable,” says Fitch Ratings analyst Sean Sexton, who writes he expects production cuts to accelerate in the first and second quarters of 2009. However, analyst William Adams at BaseMetals.com insists that price will increase at some point in the near future. “Although the economic background is weak and is likely to remain that way, the outlook is not all negative,” he writes to clients. “Cutbacks are being made, the supply chain has been run down (and) billions of dollars are about to be pumped into infrastructure projects, which will provide orders and the need to restock.”
The tonnage in LME warehouses last week was 2.67 million metric tons, which set a new record above the 2.66 million reported in June 1994. Since cutbacks began last August, some analysts' tallies show about 5.8 million metric tons of annual capacity has been curtailed globally. Analysts say LME inventories are heading for 3 million metric tons by the end of this year. At the current weak rate of consumption, that would bring the global surplus to 1.9 million metric tons this year, up from an estimated 1.16 million in 2008, says analyst Dan Smith, at Standard Chartered in London.
Adam Rowley, analyst at Macquarie Bank, sees about 1.3 million metric tons in surplus this year but that’s because he predicts even more production cuts by smelters. Some analyses suggest global supply in 2009 will have to be cut from 40 million in 2008 to 30 million to 35 million metric tons to meet a projected 10-15% drop in demand from 39 million in 2008.
Already, aluminum producers United Company RUSAL of Russia and Bosai Minerals Group of China have delayed or changed their multi-million dollar investment plans in Guyana in light of a global drop in prices and demand for metallurgical and non-metallurgical bauxite. Guyana Prime Minister Samuel Hinds tells the media that the investment revisions were due to the fact that aluminum prices are forecast to remain under great pressure in 2009.
Norsk Hydro, the world’s fifth-largest aluminum firm, is considering closing its biggest German smelting and aluminum products fabricating plant after metal prices plunged and electricity costs to operate the factory surged, the German newspaper, Handelsblatt, reports this morning.
See also: Weak demand is spurring aluminum restructuring
See also: Alcoa confirms aluminum production cuts on slumping demand
Aluminum may start moving up, again
01/17/2005
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