Last Updated : 27 November 2010 at 02:10 IST
Aluminium headed for gain
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However, experts said excess capacity coupled with the threat of huge inventories flooding back to the market, mean that market bulls may eventually be forced to retreat longer-term.
Much-anticipated ETPs are the current focus for investors, with worries prevalent that they could tie up excess material, divert metal away from the normal supply chain, and distort prices.
The market is still flooded with aluminium and prices could go as high as $2,700 next year as excess metal is sucked into ETPs.
Despite the price recovering from lows at $1,828 in June, London Metal Exchange (LME) warehouse stocks of aluminium are 4.3 million tonnes — not far from record highs above 4.6 million tonnes hit in January
Analysts say as much as 75 percent of those 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.
Government stimulus packages, quantitative easing and planned ETPs are all partly responsible for rising metal prices.
Metals analysts expect global aluminium output to total about 41 million tonnes this year, with China producing around 16 million tonnes. Chinese consumption is about 16.5 million tonnes.
But a drive by Beijing to cut energy use and emissions has caused aluminium firms in China to consider new energy efficient investments, and possible mergers to cope with new policies.
Power-hungry smelters in some Chinese provinces have already cut production on reduced power supplies as local governments rush to meet a current energy intensity reduction target by December.
Higher power costs in China should help limit price declines. Marginal costs for Chinese smelters are estimated at between $2,000-$2,200 a tonne.
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