Citi paints bullish picture for aluminium, zinc

Year 2005 would be the year for aluminium and zinc producing companies - thanks to China.

These metals would see a rise in prices in the international market which would spur price hikes in the domestic arena though with a lag.

The condition was likely to prevail throughout the whole of 2005 and 2006.

A forecast made by the Citigroup on base metals indicated that aluminium and zinc prices were likely to rise at a faster pace compared to other base metals this year as demand would far outstrip supply.

This, according to the report would be because miners were not in a position to meet increased demand and Chinese smelters were witnessing power shortages disrupting supply of these two metals.

Citi raised its price forecasts for copper, nickel, lead, iron ore and coking coal.

The January 31 report mentioned that in the aluminium market, refined production would be restricted by alumina availability and power shortages in China.

The zinc market on the other had was likely to see demand supply gap widening in 2005, the report said.

Citigroup forecast prices of aluminium at $1,938 per tonne and zinc at $ 1,277 per tonne in 2005.

Aluminium was however selling at prices lower than this at present on the London Metal Exchange (LME) and so was zinc.

Bloomberg and ABN Amro have already forecast that prices of these two base metals were likely to outpace other metals in their group due to limited availability and rising demand.

In a parallel development alumina costs were also witnessing a rise as miners were not being able to meet demand from smelters.

The report said that in the alumina market, capacity growth would be insufficient to meet projected growth in smelter capacity, forcing closures and cancellation of projects in the international market.

The global production of aluminium was estimated at 31.5 million tonnes while demand was estimated at 31.8 million tonnes leading to a shortfall of 270,000 tonnes.

China has been facing acute power shortage and was also one of the major suppliers of aluminium in the global market.

Lower production because of power cuts would propel prices upwards as producers would not be able to meet their projected volumes.

Citigroup also said that lack of raw materials would limit output of aluminium.

"Only 1 million tonnes of mine capacity was due to start up in the next two years, further depleting inventories that fell 15 per cent last year," it said.

China produced one fourth of the world's refined zinc, but it became a net importer of the metal last year, with steel makers accounting for 47 per cent of the metal's consumption.