According to the World Bureau of Metal Statistics, the global aluminum market was in oversupply by some 1.23 million tonnes in the first nine months of 2013, following a surplus of 539,000 tonnes for the whole of 2012. It’s this quantity of metal above ground which drove prices this week to their lowest value since mid-2009.
The Midwest surcharge, the U.S. benchmark, will drop 22 percent to 8 cents a pound by the end of June, the Bloomberg survey showed, after the LME will accelerate the delivery of another 2 million tons of aluminum onto the market.
The London Metal Exchange’s plan to ease congestion at warehouses storing near-record amounts of aluminum will accelerate deliveries and reduce premiums paid for supply, at a time when prices are already near a four-year low.
At the end of June, it seemed that bottom was falling out of copper prices. Since then it gained a few percents, but last Thursday on the London Metal Exchange, copper for delivery in three months fell 2.2 percent to $6,863 a ton ($3.11 a pound).
On friday, copper fell again to the lowest level in almost three weeks and lost 0.6 percent to $6,820 a metric ton, the lowest since July 10, and was at $6,838.75 at 10:14 a.m. in Shanghai. Metal for delivery in November on the Shanghai Futures Exchange dropped 2.1 percent to 48,970 yuan ($7,988) a ton.
Traders said sentiment in copper remained bearish after the metal in global markets as concerns that demand from China, the largest user, will decline outweighed country’s plans to reduce production capacity.
Industrial metals prices trading on the London Metal Exchange were shaken this week by an unexpected slowdown in Chinese growth, followed by gloomy indicators in the United States, which cast doubt on global growth strength.
Stuck in a pattern of structural oversupply, Barclays Research forecasts the price of aluminum to stay around 2,000 dollars per ton. It has tested several alternative scenarios to try to understand how the light metal market will evolve.
Despite ever more abundant surplus, producers have not taken adequate measures to balance the aluminum market. The surplus reached 889,000 tonnes in 2011, 1.5 million tonnes (Mt) in 2012 and expected to peak at 1.8 Mt in 2013. In this context, the average price of aluminum has fallen year on year by 16% in 2012 to 2,017 dollars per tonne, its lowest level since 2009, when it collapsed under the impact of the financial crisis.
While the above fundamental narrative is a simple one, it belies a number of significant distortions that mean the metal is “generally viewed in far more uncertain terms by market participants in 2013″ than it would be otherwise.
As we were mentioning in Aluminum: China is running out of bauxite, in May, Indonesia asked all mining companies to either build their own processing capabilities locally or partner with companies able to do so, knowing that by 2014, exports of raw minerals, including bauxite, would be forbidden. Indonesia‘s goal is to derive more revenue from its mining sector.
Addicted to Indonesian bauxite, Chinese aluminum companies need to diversify their sources of supply or develop local production. Eventually, this supply issue should lead to an increase in China aluminum imports.
A parallel can be drawn with bauxite. Over the last 5 years, ever-increasing volumes of bauxite have been imported to feed aluminum refineries in China. The aluminum companies have decided to refine bauxite themselves rather than buy aluminum because of significantly lower investment costs in China.
Copper’s average will fall from $3.60 a pound this year to $3.20 a pound next year when supply and demand will be in balance after a shortage this year, Peter Hickson, an analyst at the bank, said in a report dated today. Nickel will strengthen throughout 2012 and average $8.98 while zinc falls from $1.03 a pound this year to $1 a pound next year, according to the report.
Three-months aluminum fell as far as $2,054.75 a metric ton on the London Metal Exchange Monday, the lowest level in 14 months and down 27% from the May peak of $2,803 a ton.“As a result, increasing numbers of aluminum smelters are becoming unprofitable and are temporarily shutting down production.”
Aluminum prices have fallen below the cost of output for many producers, creating a scenario in which global production may suffer in the months ahead if prices do not recover. Like other base metals, aluminum has tumbled from its highs earlier in the year on worries about the strength of the global economy and thus potential industrial demand, particularly as the European sovereign-debt crisis continues.
The biggest decline in aluminum prices since the global recession means at least 25 percent of the world’s smelters may be unprofitable.
The metal fell 23 percent to $2,125 a metric ton on the London Metal Exchange since May 1 and energy costs gained 12 percent in the past month.
Twenty-five percent of production loses money below $2,350 and 50 percent under $2,000, according to estimates by Bloomberg Industries. About 10 percent of output may be shut by the first quarter, said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich ranked by Bloomberg as the most-accurate price forecaster over two years.