Set to soften in H2 this year, to be $2,400-$2,600/tn in 2012.
Where will aluminium prices be in 2012? According to U C Rusal, the world’s leading producer of the white metal, aluminium prices will rise from the present level of around $2,510 a tonne to anything up to $3,000 a tonne, no matter even if some stocks in the meantime get released from financing deals. This faith is shared by the US-based aluminium consulting group Harbor Intelligence (HI) whose founder, Jorge Vazquez sees a three-year uptrend in prices to the “north of $3,000 a tonne” 2012 onwards.
Their optimism is primarily based on high global energy cost, environmental regulations, particularly in the West, making running of refineries and smelters so much more expensive, factoring in the cost of bauxite mining to shipments in the pricing of alumina in a path-breaking shift from deriving the price of the intermediate chemical as a percentage of LME rates for the white metal and the possibility of restricted electricity availability to smelters in China. Some of these points also find a mention in Hindalco’s last presentation to analysts.
The world has seen some significant two-way movement in aluminium prices since the final quarter of 2010, when these averaged $2,343 a tonne. From $2,500 a tonne in the first quarter of 2011, prices climbed to over $2,700 a tonne in April-end. The LME cash rates are now $2,466 a tonne with three-month forward commanding a premium of $33 a tonne. The Economist Intelligence Unit says aluminium prices will turn soft in the second half of this year and into 2012, “as global liquidity conditions tighten, oil prices weaken and the potential overhang of stocks depresses market sentiment. There will not be a dramatic fall, however, with prices set to average $2,496 a tonne in 2012.”
This forecast will, however, hold good provided excessive stocks of the metal on LME and also substantial unidentified stocks are managed in a way as not to cause a deluge in supply at any point. At the same time, smelters will have to stay watchful to ensure the market does not have to contend with oversupply. At the recent HI annual aluminium conference, which has made a name for the guidance the market takes from its deliberations, held a survey of the participants on the price outlook for the metal. An overwhelming 75 per cent of the participants are expecting “relatively stable LME prices averaging $2,400 to $2,600 a tonne in 2012.” At the same time, many believe that next year they will be required to pay higher regional physical premiums relative to LME prices.
When the world slipped into a recession in the final quarter of 2008 the severity of which was next only to the Great Depression of the 1930s, aluminium and other non-ferrous and ferrous metals saw their bottom drop out. In the first quarter of 2009, the average LME cash aluminium price was $1,360 a tonne, leading to closure of much smelter capacity in every part of the world, including China. According to Rusal, a price range of $2,500 to $2,600 a tonne is what smelters will need to “economically produce aluminium.” Incidentally, our own Hindalco and Nalco happen to be in the lowest cost quartile of the world aluminium industry. Vedanta will also become part of this, once it gets on with bauxite mining in the Niyamgiri hills, overcoming the hurdles. As the US, European and Chinese generous stimulus programmes aided world economic recovery, the 2009 final quarter price of aluminium rose to $2,003 a tonne. But for that year as a whole, the average price of $1,665 a tonne marked a discount of 35.3 per cent over the previous year.
Demand growth for aluminium last year was exceptional since it happened on a low base for 2009. Aided by strong demand from auto, aerospace and electronics industries, aluminium demand grew 14.3 per cent in 2010 to close to 40 million tonnes. A Societe Generale official says besides continuing good demand from the above sectors, the substitution of aluminium for the lot more expensive copper (over $9,100 a tonne) will see the use of white metal to grow 7.6 per cent a year over the next five years. He expects a global aluminium deficit to occur in 2013, but that is not to last long. China alone has 10 fully committed expansion programmes, to start adding new smelting capacity in the next 18 months. Some, however, think the surplus will disappear as early as next year, helping metal prices.
What is to aid aluminium demand is the spurt in orders for commercial aircraft placed with Airbus and Boeing and the automobile industry doing well, particularly in the US. Not only will aircraft deliveries this year be up nearly 14 per cent but aluminium usage per unit will rise 3.2 per cent.
Similarly, substitution for environmental and weight reduction reasons will see more aluminium use per car. The world is also to see improvement in aluminium shipments for construction coming after yearly losses since 2006. Expect global aluminium production to rise this year some five per cent on 40.8 million tonnes in 2010.