Aluminum prices to remain low in 2010
New report undercuts consensus aluminum forecast
Tom Stundza -- Purchasing, 11/10/2009 11:55:15 PM
See also
North American aluminum demand is down 20% this year, keeping prices below '08 levels
Aluminum prices are being depressed by excess supply
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World aluminum prices will remain weak in 2010 since some
smelters are expected to restart idled production despite a surplus already
overhanging the global market. That's the latest from Bank of America/Merrill
Lynch Research, which sees an average London Metals Exchange aluminum price of
79¢/lb-as compared with a projected 2009 average price forecast of 75¢.
The Bank of America analysis sees a price average "at bearish levels" when compared with the 84¢ consensus forecast of three dozen analysts polled by Reuters and Purchasing.com.
Though smelters around the world have cut production, many closures have been temporary and the aluminum market remains dogged by excess capacity. "Looking at recent announcements of production restarts and the current project pipeline, we are concerned that the aluminum market may remain structurally weak," the report says.
Although the analysts expect world aluminum demand to recover somewhat in 2010, purchasing won't be as high as past years and further capacity adjustments seem necessary "to restore equilibrium to the aluminum market." In other words, more smelters will have to close and some expansion projects will have to be delayed for prices to ever get back to the $1.19/lb average of 2006-2008.
However, the analysts write that smelter cutbacks may not happen for a time because production costs at most smelters are now below London Metal Exchange (LME) price averages and many producers in the Middle East, India, Canada and Russia have positive margins even at low sales prices. This is especially true in areas where relatively low-cost hydropower sources or natural gas-generated electricity are cheap and plentiful.
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