Commodity-grade aluminum demand in North America has been relatively soft lately, says analyst Chuck Bradford at Bradford Research in New York. In fact, "conditions in the aluminum market have been ugly since the beginning of August." So, as the metalworking economy's growth rate slows in coming months, demand for aluminum-based mill products also is likely slow," says analyst Mike Gambardella at J.P. Morgan & Co. in New York.

On average, orders for aluminum mill products recorded by domestic producers during the first 10 months of 2007 are 9.3% below those of a year ago. And that's why Merrill Lynch & Co. analyst David Lipschitz in New York has a reduced $1.18/lb price average for ingot in 2008—as compared with an expected $1.21 in 2007.

Based on preliminary estimates from the Aluminum Association, aluminum supply in the U.S. and Canada, defined as domestic shipments of semi-fabricated (mill) products by domestic producers plus imports, totaled an estimated 17.7 billion lbs through the first nine months of the year, down 5.2% from the year-earlier period. After adjusting for end-use operations, actual use of mill products through September was 14.2 billion lbs, a drop of 4.3% from the first nine months of 2006.

Since the purchasing outlook for 2008 from the construction, aerospace, automotive and consumer-packaging markets isn't all that bright, market analysts expect a drop of 5% next year. So, buyers should see plentiful aluminum supply for some months with leadtimes for fabricated mill products at less than six weeks.

Meanwhile, the Metal Service Center Institute reports that U.S. service center shipments of aluminum products totaled 89,000 net tons in November, or 5.5% lower than November 2006. At press time, aluminum shipments of 1.08 million tons were down 5.2% from 2006r. U.S. aluminum product inventories of 272,200 tons are down 29.9% from a year ago and equal to a 3.1-month supply. This compares with a 4.1-month supply at the same time in 2006 and a 2.7-month supply at the end of October.

Canadian service center aluminum shipments of 9,900 tons were down 2.4% from November 2006, and year-to-date shipments of 112,500 tons are 3.1% lower than the same period in 2006. MSCI data shows Canadian aluminum inventories of 27,600 tons, down 10.3% from 2006. At current shipping rates, this represents a 2.8-month supply, compared with a three-month supply at the end of November 2006.

Despite all this, prices have increased by 42% since 2006—mostly because of speculative investment in commodity exchanges and a global 4.5% surge in purchasing. "Aluminum is clearly a commodity product," says Bradford, "with all the price risks that come with London Metal Exchange (LME) and New York Commodity Exchange (Comex) trading." Still, he and other analysts agree with Lipschitz that 2007 will be the peak in aluminum transaction prices and the 2008 ingot price average will slide somewhat. Analyst Tim Hayes at Davenport & Co. in Richmond, Va., says, for example, that "prices should remain high by historical standards."

The key question for this year's aluminum market is whether supplies of heat-treated aerospace-grade aluminum will stay tight. Bradford says it's possible because, while the new Boeing 787 Dreamliner is mostly a carbon fiber plane, it also uses a large amount of Alcoa aluminum fasteners. "More importantly, smaller Boeing planes and all the Airbus planes are largely aluminum," he says, and there are a limited number of firms globally—Alcoa and Kaiser Aluminum mostly—that are able to supply the so-called hard alloys to the airline manufacturers and their suppliers.