Despite stocks aluminum prices climb

Financial Express reported that aluminum prices are rising despite significant overcapacity and surplus production outlook over the next 3 years raising a big question mark on the sustainability of the prices at their current levels.

As per report, prices have risen 75% on the London Metal Exchange from their February 2009 lows of USD 1,250 reaching USD 2,200 per tonne on the LME.

However, experts believed that such high price of the commodity is not sustainable, as high inventory on the LME would keep prices under pressure in the near term.

Industry sources said that global aluminum production is expected to grow at about 4.5%, which, along with the doubling of inventory at the LME in the last one year to about 4.6 million tonne should further add on to the surplus.

The report said that “Together with the fact that the aluminium market is burdened with significant overcapacity and is set to be in small-moderate surplus over the next 3 years, we do expect the fundamentals to reassert themselves in 2010.”

State run Nalco last week increased prices of aluminum by INR 3,500 per tonne, citing improvement in the metals rate at the LME. In the domestic market, demand for aluminum is expected to grow by about 5% to 6% led by demand from user industries like automobile, consumer durables, construction, power and packaging industry.

Hindalco in its recent presentation to investors had said that early signs of recovery in aluminum prices were visible but the large global inventory of 6.5 million tonne is a concern. The company expects aluminum prices to remain range bound in the short term.

On the demand front, the boom in physical premiums does illustrate that an end to de stocking is well underway in the main developed countries. China is witnessing strong aluminum demand from the construction, automotive and infrastructure sectors.

According to a recent report by Enam, aluminum demand in China is expected to grow by 15% in 2010 on the back of revival in construction and auto segments. However, in the short term, overcapacity, plenty of inventories and reopening of smelters due to return to profitability will cap any upswing in aluminum prices there.

(Sourced from Financial Express)

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