Aluminium price rally to continue

Aluminium is likely to continue its bull run for at least another month on speculative buying and supply fears due to closure of mines in China.

"If the price, which is presently hovering around $2,850 a tonne, crosses $2,900, speculators will push it above $3,300 a tonne, the all-time high the metal hit on November 5, 2006," said Dharmesh Bhatia, an analyst with Kotak Commodity Services.

Aluminium prices have surged 20 per cent since January 2 despite inventories in the LME-registered warehouses swelling 22,975 tonnes to 952,425 tonnes during the period. In the spot market in Mumbai, aluminium ingots have perked up by 9.16 per cent so far this year to Rs 131 a kg.

Fundamentals still support a spurt in prices as smelters in China have closed down.

According to sources, up to 1.5 million tonnes of China's annual aluminium smelting capacity has been shut since late January due the country's worst winter storms this decade.

Aluminum Corp of China will take at least a month to resume even 50 per cent of the production it has shut as the country has been facing energy supply shortages.

As a result, the country's aluminium exports declined 6.6 per cent in January at 52,326 tonnes of unwrought aluminium, including primary metal and alloys from the previous month and down 2.6 per cent year-on-year.

However, Jayant Manglik, head (commodities), Religare Enterprises, believes the overheating in aluminium prices would cool off next week. "The speculative upper side is unsustainable and, therefore, the situation is likely to reverse immediately," said Manglik.

Aluminium production, which is power intensive, is facing power shortages not only in China but also in South Africa.

However, supply constraints caused by the output deficit are likely to be compensated by excess production in India, Russia and European countries. The production of aluminium requires 13,000 to 16,000 units of power depending upon the technology.

In 2007, however, the metal slumped 17 per cent to $2,350.5 a tonne from $2,830 a tonne.

Rising prices of energy and growing needs of smelters for energy will set an uptrend in aluminium prices in the near future as well as in the medium run.

Both China and South Africa with a bulk of global aluminium capacity face severe energy constraints that may affect aluminium production. The resultant spike in aluminium prices will continue for sometime.

Assessing the situation, domestic producers National Aluminium Company (Nalco) and Hindalco Industries have raised prices by Rs 8,000 a tonne with immediate effect.