LONDON, Oct. 13 -- The aluminum market is expected to be in a 1.593-million-metric-ton surplus in 2009, shrinking to 677,000 tons in 2010, assuming disruptions of around 4 million tons, JPMorgan Chase & Co. (JPM) said Monday.

    In a presentation to the London Metal Exchange annual Metals Seminar in London for LME Week, Michael Jansen, JPMorgan's executive director, commodities group, said that the disruptions are expected to be split roughly 50% between China and 50% in the west.

    Inventories are expected to be around 10.1 weeks of consumption in 2010, Jansen said, up from 9.7 weeks in 2009 and 6.8 weeks in 2008.

    "There are 4.5 million tons of on-exchange stock, a record - 45 days of consumption," Jansen told the seminar. "Likely a further 2 million-3 million tons of metal is being held off-exchange, in addition to producer and consumer inventory," he added.

    There is also "considerable" smelter excess capacity, Jansen said, with capacity utilization globally in 2009 around 79%, against a long-term average of around 90%.

    "So a large demand improvement can be met quite easily through existing capacity," he said, noting that this capacity is currently at record-low levels. "Smelter capacity, at between 47 million and 48 million tons in 2009, is possibly enough to meet demand through to 2011-2012," he added.

    This means that production for the year at just under 38 million tons is a "fairly disastrous outcome" for the industry, and makes sustaining margin expansion highly unlikely.

    Capacity will grow in 2009 and 2010 when new smelter projects in the Middle East come on-stream, Jansen told the seminar.

    (Source: Dow Jones)