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16 Feb 2013

Commodity Online
Barclays forecast a 1.8Mt market surplus for aluminium in 2013, which would drive the stock-to-consumption ratio to more than nine weeks over the course of the year. There is more diversity in perspective on the aluminium market this year, they said.

The standout performer over the past week has been aluminium, where LME cash prices have risen to a six-week high just below $2,150/t. Barclays believe the move has largely stemmed from technicals and some subsequent CTA buying, with underlying fundamental conditions firmly in a surplus dynamic.

Rusal, the world’s largest aluminium producer, stated that it sees the aluminium market balanced this year. The difference in view from the Barclays forecast stems largely from two assumptions in their view.

First, Rusal expects close to 1-1.5Mty of production capacity to be shut in this year. They believe inventory financing and subsequent upward pressure on physical premiums, as already seen in January-February, will continue to create a margin buffer against closure decisions of that magnitude.

Second, is that some analysts have failed to adjust their CNIA or NBS aluminium primary production data higher for capacity that is not included. This amounts to close to 1Mty of fully operational smelting capacity and, hence, could make a significant difference in their balances.

Recent anecdotal evidence suggests that new capacity ramping up in Xinjiang, such as East Hope’s 1.2Mty smelter and Tiashan’s 800Kty smelter, have achieved take-off in terms of their captive coal power installations and, in turn, are on track for firm sequential improvements in output. On the demand side, their global growth projections are the same as Rusal’s and are not a point of contention.

However, one problem with aluminium demand fundamentals is that the market lacks study group data seen in other base metals, which means historical inputs could also be an explanatory factor in terms of different starting points for projections. Another area of attention in the aluminium market has been the tightness in certain time spreads along the forward curve. They have seen backwardations develop in the specific monthly spreads of June 13-July 13, Sep 13-Oct 13 and Dec 13-Jan 14.

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