The Hindu Business Line : Surplus production may deter aluminium’s rise

Outlook
Though there is a short-term slowdown in Aluminium demand, it is likely to grow 10.1% y-o-y.
Mixed view on sustenance of copper demand from China in the short-run.

Suresh P. Iyengar

Mumbai, Aug. 14 The fall in aluminium prices is expected to continue through the year as the global aluminium industry looks forward to a surplus production of 2.90 lakh tonnes (lt), against a deficit of 3 lt last year.

World production (ex-China) is forecast to grow by 5.2 per cent to 1.26 million tonnes (mt) in 2007.

Traders expect surplus production to bog down prices for the next two years with many aluminium companies planning to enhance capacities.

Alcan project

Alcan has embarked on a greenfield Coega aluminium smelter project of 7.20 lt in Eastern Cape with an investment of S$2.7 billion. The project is expected to be ready by 2010.

Aluminium major, Rio Tinto, and Malaysia’s Cahya Mata Sarawak (CMS) have signed a feasibility study pact for the proposed development of a 5.50-lt per year greenfield smelter in Sarawak, Malaysia. Production is expected to come on line in Q4 2010.

Though there is a short-term slowdown in demand, it is estimated to grow 10.1 per cent year-on-year with about 75 per cent of it coming from China.

Crackdown

The recent crackdown on illegal aluminium scrap imports in China has hit the sector. According to latest reports, several orders have either been cancelled and in some cases consignments detained at South China ports. A fall of 2.9 per cent year-on-year in overall construction spending in the US in June has also contributed to dip in prices.

Copper

The sub-prime lending crisis in the US has impacted copper prices. On the LME, prices have dropped $704 per tonne to $7,455 between June 31 and August 10.

After the end of a six -week strike in Codelco and Chile, Mexico’s national union of mine and metals workers struck work at three mines owned by Grupo Mexico — Taxco and San Martin (both medium-sized zinc-lead producers) and Cananea (a big copper mine).

International agency Platts reported that output lost due to the worker strike was around 39,000 tonnes.

China has reported a 2.7 per cent fall in copper imports to 2.06 lt in July against 2.12 lt in the same period last year.

“There are mixed feelings about sustenance of demand from China in the short-run as there are reports that big Chinese smelters might cut production by 10-15 per cent in the second half of the year owing to costlier imports and lower domestic rate. Chinese smelters depend heavily on imports of copper ore concentrates,” a trader said.

The Central Bank of Zambia has reported 13.3 per cent drop in national copper production to 2,29,102 tonnes in first half of 2007 from 2,64,252 tonnes in the same period last year. “This indicated a considerable under-performance in a sector, which has lately witnessed fresh investments because of high copper prices,” said an analyst.

Nickel

Nickel prices remained bearish as the demand for the metal has slumped globally owing to high inventory. However, market reports indicate that the slump in demand is short-lived as stainless steel, which continues to be the single largest end-user industry of the metal is expected to be robust in the long-run.

Currently, the production of stainless steel is slowing down as the products now are widely mis-priced after 40 per cent slide in nickel prices. Producers are attempting to get rid of their excess inventory of stainless steel.

“Consumption is likely to re-accelerate in the fourth quarter of 2007. Chinese nickel market dynamics has also contributed to the slump in prices of nickel. Baosteel, the Chinese steel giant that helped nurture this new production stream, has stopped buying nickel pig iron due to fast-deteriorating economics,” said an analyst.

Stainless steel

Continued slide in nickel prices and hence lower prices of stainless steel have compelled producers to de-stock their current inventories and plan production cuts.