The Hindu Business Line : Aluminium futures may continue to dip

Mumbai, Aug. 26 Aluminium futures on MCX may continue to dip in line with the international trend. Though the volumes are low, Aluminium for September delivery, which is trading at Rs 105 per kg, may dip to Rs 94-98 level.

On the LME, the prices are hovering around $2,515 per tonne and may fall to $2,300-2,400 per tonne. From a deficit market last year, aluminium production is expected to surpass demand in 2007.

Global aluminium production is expected to register a 10.7 per cent year-on-year growth to 37.6 million tonnes (mt) in 2007 against a 6 per cent increase last year.

Strong Growth

Consumption in 2007 is expected to rise by 9.7 per cent to 37.1 mt on the back of a continued demand from China and India.

“Expectation of a higher output from China is likely to transform the deficit market into surplus in 2007, leading to softening of prices,” said Mr Tarang Bhanushali, Research Analyst, India Infoline.

In the first half of 2007, global aluminium consumption recorded a strong growth and it is expected to continue.

Consumption in the first half of 2007 increased by 12 per cent year-on-year, with China accounting for a major chunk of the increase.This year, China’s offtake is expected to rise by 23.2 per cent, continuing to be the main growth driver in global consumption as investment in infrastructure to cater to rapid economic growth and large-scale rural-urban migration continues to be high.

The consumption has also increased from price competitiveness of other metals, such as copper, for which aluminium can be substituted in some uses.

Capacity Addition

Constraints in Chinese smelter output experienced last year due to shortage of alumina have now been relaxed due to capacity addition. This will further improve the supply and keep prices subdued over the next two years.

“However, consolidation in the industry coupled with rising energy costs could restrict the downside in prices. We expect aluminium prices to be range bound in second half of 2007 at $2,400-2,500 per tonne on the LME. Over the next two months aluminium futures on MCX may touch Rs 94 per kg, down by 8.5 per cent,” Mr Bhanushali said.

Projects

The surge in base metal prices last year led to many global players going in for large capacity additions.

According to the National Development and Reform Commission of China there are 11 ongoing aluminium projects globally set to add 1.12 million tonne capacity.

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