LONDON (Commodity Online): Aluminum to rise by year-end but stay in the slow lane. The metal has strengthened in early 2012 with other base metals while benefiting from its own fundamentals, such as swathes of the smelting industry remaining unprofitable, a contrast to other metals,said BNP Paribas in a research note.
BNP estimated that world aluminum demand rose by 10% in 2011 and forecasts a still-impressive 7% rise in 2012. However, there is no shortage of aluminum smelter capacity to meet expected demand growth.
BNP estimates a 2011 market surplus of 600,000 metric tons, even though capacity utilization ticked up only to 86-87%. Whereas BNP anticipates smelter capacity growth will be sluggish in 2012, analysts also figure capacity utilization of about 87% would balance the market.
“Moreover, capacity growth looks set to pick up sharply from 2013, chiefly due to investments in China’s western and northern regions. In short, it does not appear to us likely that aluminum will experience the supply constraints of some other metals,” BNP added.
Meanwhile, aluminum inventories are notoriously high. LME inventories ended 2011 at around eight weeks worth of global demand. Including the estimated build-up in unreported stocks, total inventories are likely around 12 weeks.
The bank anticipates a limited number of fresh market-driven producer cutbacks, with a modest further recovery in aluminum toward $2,500 a metric ton by late 2012.
“We expect…a sizeable market deficit this year, but price gains will be curbed by still onerous stocks and the strong possibility of a return to surplus in 2013,” BNP concluded.
