Aluminium prices seen volatile on output cutbacks Higher power costs adding to smelters’ woes

Print this page Posted on : 02-19-2010 by recycleinme.com

London, Feb. 18 Uncertain power prices will lead to further aluminium production cutbacks and volatile prices, Norwegian producer Norsk Hydro said on Wednesday. RENEGOTIATION But Hydro will increase its primary aluminium production by 175,000 tonnes this year to 1.425 million tonnes ( mt) and to about 1.55 million in 2011, its chief executive said. “ I would expect that there could be more cutbacks this year because there are smelters renegotiating their energy contracts – in Italy and Spain,” Mr Svein Richard Brandtzaeg told Reuters.“ With the CO2 cost element in the energy prices in Europe, it is very challenging to get a competitive energy contract. If you look at the market balance, there is over supply, so in general there is no reason to restart capacity so far this year.” Analysts warn of multiple closures in western Europe, ( CO2) costs. A number of European smelters — in Switzerland, France and the United Kingdom — have already been forced to close in recent years after their long term energy contracts ended. Prices for aluminium are currently ruling at about $ 2,110 a tonne, but Mr Brandtzaeg said they were currently higher than the fundamentals. He added that aluminium inventories in London Metal Exchange warehouses, at near record levels above 4.5 mt, faced an uncertain outlook. “ We have seen inventories levelling off at the end of 2009,” Mr Brandtzaeg said. “ We are also seeing analyst reports about unregistered inventories. “ It is difficult to say but the base case as we see it, is that we are starting up in 2010 with an oversupply situation.” A large portion of those aluminium stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.

Source : Business Line