Alumina’s Short And Long Term Drivers

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By Greg Peel

Alcoa has had a very strong first half, riding on the back of aluminium prices and increased production. Given the AWAC connection, this suggests Alumina’s (AWC) earnings will meet optimistic forecasts as well.

As we head into the third quarter of 2006, seasonal trends suggest a fall in aluminium demand. This is one factor that will probably keep a lid on short term earnings for Alumina, but the other problem is Chinese alumina smelting capacity which has run amok like everything else. China is now importing far less alumina.

While this does not bode well for the longer term Alumina price (both the product and the company), Deutsche Bank has made one slightly offhand comment in a report that may highlight significant longer term ramifications. China may well be pumping out the alumina, but it needs continuing stocks of high quality bauxite.

Given AWAC’s bauxite sources, this would likely suggest an underpinning of the Alumina price in the macro scale. China has sucked up everything else, so bauxite should be no exception.

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