LONDON (Commodity Online): Aluminium prices rising modestly to an average of $2,250/tonne in 2012, but significant downside risks clearly exist, said a 2012 first quarter Metals Review by Natixis Commodity Markets Ltd.
According to Natixis, despite a rapid increase in demand for aluminium, a sustained increase in supply kept the market in substantial surplus in 2011. With aluminium prices depressed and costs of production rising, Natixis would expects a shutdown of higher cost facilities to bring the market slowly back into balance.
Much depends upon China, however, where substantial surplus capacity still exists. For us, it makes sense for China to shift towards becoming a net importer of metal from cheaper production locations (with lower energy costs), but although there were some signs of the country moving from surplus to deficit in late-2011, the outcome for 2012 is far from clear.
If Natixis is wrong, the ever-growing stockpile of metal held in western warehouses will become an increasingly large risk to aluminium prices, particularly given the ongoing credit contraction in Europe.
