Rising Chinese production costs may support aluminum prices Global surplus in the metal may increase 29%

Print this page Posted on : 11-24-2009 by recycleinme.com

Higher input costs and a potential appreciation in the Chinese yuan will support prices.

Bloomberg

Nov. 23

Aluminium prices will be supported for the next three years by rising production costs in China, the biggest producer, and a recovery in global demand, Macquarie Securities Ltd. said.

The aluminium market may expand to between 42 million and 45 million tonnes by 2012, analysts led by Mr Jim Lennon said in a note, without giving a comparison. Higher input costs and a potential appreciation in the Chinese yuan will support prices, the brokerage said.

China last week raised power prices, which account for about a third of aluminium output costs, to help utility companies curb losses.

Aluminium prices, lagging behind other metals, may rise as producers including Aluminium Corp. of China Ltd. pass on costs, Essence Securities said Nov. 20.

The main potential upside risk to aluminium prices over the next 2-3 years is the potential for increases in the marginal cost of production, the analysts said. Aluminium for three month delivery on the London Metal Exchange rose 0.1 per cent to $2,062.50 a tonne on Monday.

The metal has gained 34 per cent this year. In Shanghai, the price gained 0.7 per cent to 15,755 yuan a tonne.

Macquaries call comes as Barclays Capital and Bank of America Merrill Lynch highlighted growing inventories and output gains of the metal used in airplanes and packaging. Macquaries analysts also said there are concerns over inventory and production growth in China.

Chinese Stocks

Chinese aluminium stocks have risen to 520,000 tonnes as of Nov. 19, more than doubling from the first quarter, Macquarie said. Capacity utilisation at Chinese smelters may rise from 80 per cent in the period to the Lunar New Year next February.

It may gain through 2010 meet an anticipated continuation in strong growth in Chinese demand, the analysts said.

Barclays Capital forecasts that the global surplus in aluminium will increase 29 per cent to 1.63 million tonnes next year as the biggest annual price increase since 1994 spurs output.

Chinas National Development and Reform Commission, the country's top economic planner, raised power prices by 0.028 yuan per kw-hour last week.

That will add about $60 a tonne to higher-cost aluminium producers, giving them a total output cost of $2,050 and $2,100, Macquarie said.

About 55 per cent of Chinese aluminium smelters are running their own power equipment and aren't affected by the power tariff increase.

Source : Business Line