Commodities | Sep 18 2009
By Chris Shaw
The aluminium market has been dogged by oversupply issues for some time so it is little surprise sentiment at the recent Metal Bulletin International Aluminium conference in Dusseldorf in Germany was mixed, Barclays Capital noting while a clear improvement in demand was a positive theme, delegates remain sceptical it can be sustained for any length of time.
On the good news side producers and consumers at the conference reported a pick up in business, with demand improvement being apparent from Brazil to Europe, China and even the US thanks to stronger buying from the automotive market on the back of the “cash for clunkers” plan.
But the view remains this demand boost will only be temporary, with Barcays noting participants at the conference are still very sceptical about any restocking cycle developing among OECD nations anytime soon. The group suggests this view may prove to be overly pessimistic however, especially as metals-specific leading economic indicators continue to show some improvement.
What Barclays suggests is that any concerns as to the medium-term price outlook appear somewhat justified, given the industry remains subject to massive overcapacity and huge inventories, which together will limit price upside in its view. This outlook is reflected in its price forecast for 2010 of US$1,875 per tonne, which compares to a current spot price of US$1,947 per tonne.
Barclays points out short-term factors discussed at the conference were centred on financing and the implications for spot metal availability as a number of current deals run out either late this year or in the first half of 2010. They may not be rolled over given the market’s current contango (which means forward prices are higher than the current spot price) and costs of capital.
Taking a longer-term view, the group notes conference participants saw some positives from the fact aluminium is light weight and can be recycled, both of which should drive demand in a world where these qualities are only growing in importance. On the supply side the big concern was centred on the carbon cost implications for production given around 80% of global aluminium output at present is coal powered.