"Though there are power shortage issues in the country (China), aluminium warehouse stock is over 1 million tonnes in the world market. This will surely cap the surge in metal prices in the near term," Jitendra Jain, deputy general manager (finance), Hindalco, who deals on London Metal Exchange, said.
In the domestic market too, aluminium prices may rise only marginally. However, supply is not going to be impacted as production is in surplus here, analysts said.
"India's aluminium market is expected to remain well supplied on surplus production even if output falls in the international market," said a key official from National Aluminium Co, the country's largest aluminium producer.
China quake, output Two of the large aluminium smelters of China, the A-ba and Guan-Vun Quiming Zin, are facing power shortages and not utilising the full capacity, said analysts. The A-ba aluminium smelter is at present producing 100,000 tonne per annum as against its actual total capacity of 120,000 tonne.
The production at the Guan-Vun Quiming Zin smelter has declined 5 per cent from the actual capacity of 110,000 tonne.
The earthquake that hit the country's Sichuan province on May 12 is the reason for lowering production at these units.
According to reports, six transformer substations have been shut after the quake. Power supply to the Sichuan power grid reduced by 4 million KV after one 500 KV and five 220 KV transformer substations in the province were badly affected. In addition, five power plants in western Sichuan were disconnected from the power grid.
Aluminium smelters are highly energy-intensive units and therefore power shortages can lead to severe production setbacks. China is the world's largest producer of aluminium. The country also exports the metal in large quantities.
However, with its domestic consumption rising sharply for the last couple of years and the current decline in production, the country is likely to turn a net importer of the metal, said an analyst with IL&FS Investsmart.
Impact on prices
"Aluminium prices on LME (London Metal Exchange) will continue to move in the $2,800-$3,000 per tonne range in the near term," said the analyst.
At 5PM, the three-month aluminium contract on LME is at $3,012 per tonne, up 0.9 per cent from its previous close.
The upward spiral in crude oil price is increasing the input cost and also in turn affecting the smelter operations, said analysts. In the last few days, the oil price has been hitting new highs on supply concerns and weakening dollar.
Crude oil futures on New York Mercantile Exchange on Wednesday surged to fresh record levels of $130.30 a barrel.
Domestic market
"If aluminium prices on LME (London Metal Exchange) go up, domestic prices are also bound to increase but only marginally as the market is well supplied," the Nalco official said.
Naclo is Asia's largest integrated aluminium producer, with operations encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail, and port.
"We cannot determine the percentage rise so early. We need to wait and watch," he said. On supply he said, "India is producing surplus quantity of the metal. So it is not likely to cause an imbalance in the demand-supply situation here."
The country produces 1.25 million tonne of aluminium annually.
Out of this, 0.95 million tonne is for domestic consumption and the remaining is exported.
