aluminium hits new 17 year highs
Date: Jan 16, 2006
Aluminium continued to push on the upside for the second week of 2006, hitting new 17 year highs. With the funds buying interest remaining undiminished and bullish news from China (annual production cuts up to 350.000 tons were announced) suggesting further market tightness, the market doesn't ask questions neither for the rise of LME stocks neither for the fact that ali has moved from $1777/mt to current levels without much of a correction.
On Monday (09/01), the primary aluminium price reached $2329/mt, aided by a weakening dollar and a historical highly zinc market. On Tuesday there was a marginal rise to $2335/mt, while on Wednesday aluminium posted sharp gains, closing at $2363.5/mt at the end of the ring. On Thursday despite a hefty 3.650 tons stocks rise at the LME, ali held on its gains, ending at $2363/mt. Friday's session (13/01) saw aluminium edging higher to $2378/mt.
November: Market Report
Aluminium prices rose substantially in November at the LME, reaching multi-year highs despite a 100,000 tons jump in LME stocks at the middle of the month. The light metal, fuelled by a combination of huge speculative interest and fundamental imbalances in supply and demand, topped at 2,140/mt on the 30th of November.
The market deficit scenario that drives the market by attracting fresh fund money is forecasted to continue through the next year as lower Chinese aluminium exports and production cutbacks lead to further supply tightness. Joining the group of most metals analysts Marubeni forecasts a deficit of 135,000 for 2006 and a whopping 509,000 for 2007. In addition Merrill Lynch estimates that 3.092 million tons of aluminium smelting capacity in the US, China and Western Europe is at risk for closure during 2005-2007 due to higher costs. Chinese producers account for at least half of those smelters, which have the highest cash costs.
Due to increased input costs, Chinese smelters are being forced to cutback production and some of the larger smelters are forming a group to help negotiate better alumina prices. The group of nineteen smelters that account for more than 60 percent of the nation's aluminium smelting capacity has agreed to cut production by 10%. The government is also planning to raise the export tax on primary aluminium from 5% to 10% from January 2006 putting further pressure on China's exports. The Asian dragon's net exports of aluminium are expected to reach 660,000 tons this year, but the figure will drop to 300,000 tons in 2006, the local press reports.
On the other hand, the all important Asian aluminium demand remains robust and forecasts are extremely bullish. Bloomberg reports that China will consume 19% more aluminium in 2006 as economic expansion stokes demand for cars and homes. Experts forecast that in 2010 Chinese aluminium usage in automobiles will approach 2.5 million tons and consumption in the transportation sector will exceed 3 million tons. Rising incomes in China are increasing private car ownership. China's vehicle sales may rise to 9.4 million units in 2010 from 5.1 million last year, according to the government. The nation has 24 vehicles for every 1,000 people, compared with a global average of 135 for every 1,000.
Moreover BHP Billiton, the world's largest miner, expects China to continue to be the main driver of aluminium demand, consuming 20 million tons per year by 2015 against global demand of over 50 million tons. Another key player alongside China is India. The booming economies of these two eastern countries are spurring demand for raw materials such as aluminium due to extensive urbanization.
The only bearish factor in November was the stronger US dollar but the greenback was softer during the second half of the month. Nevertheless base metals seem a bit disengaged from the dollar's course lately.
The long-term outlook is quite positive for the primary aluminium price due to strong market fundamentals but the current upward momentum is mainly supported by the funds buying strategy and anytime soon some speculators are going to liquidate in order to gather profits so a correction is expected just before or little after the New Year's Eve.
The LME monthly average price in November increased to $2,038.45/mt. According to latest IAI data, October's monthly production rose to 2,014 thousand tons and total aluminium inventories dropped (for the second month in a raw) to 3,218 thousand tons. Daily smelter output rate increased to 65.0 thousand tons.
BHP Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
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