NEW YORK, May 20 -- Aluminum demand is picking up and expected to continue its advance, but the pace of increase should remain slow, especially in the U.S. market, analysts and aluminum industry executives said.

Participants in the 2010 Institute for Scrap Recycling Industries annual convention in San Diego, California said, industry inventory destocking has run its course and orders were on the rise from sectors, like automotive and aerospace.

"We're certainly seeing demand in those markets today, pulling for scrap. A lot of us saw that through the winter when scrap got tight and demand continues to slowly rebound," said Mike Keown, vice president of metal procurement for North America at aluminum processor Aleris International Inc.

But with the construction industry just pulling out of a year-long depression, aluminum's growth has been spotty.

"For us, building and construction was at its peak in 2007/08 with almost 2 million housing starts. Now, we're seeing 500,000 to 600,000 starts. It's a prolonged recovery, but we think we've seen the bottom in that market," Keown said.

Despite uneven gains, Jorge Vazquez, senior aluminum analyst at Harbor Intelligence said global aluminum demand had risen 46 percent by last month from its January 2009 bottom.

Vazquez also noted that, along with demand, aluminum prices had rallied 85 percent to their peak at $2,486 a tonne MAL3 last month from the Feb. 2009 7-1/2-year trough at $1,275.

Prices have since pulled off April's high, but with growing demand the biggest determinant of higher prices at this stage in the economic cycle, he said he sees the uptrend continuing.

Vazquez projects aluminum will rise to $2,700 a tonne in the next 6 to 7 months and sees support around $2,000.

His forecast came with a cautionary note. Bearish signals from both declines in the Shanghai stock index and increases in CBOE's Volatility Index .VIX, the Wall Street fear gauge, to around 30, which the analyst deemed a make-or-break level, could put his price forecast in jeopardy.

Not only has U.S. appetite for aluminum and aluminum scrap been growing, but China and India's urban development and industrialization processes also require lots of the metal.

"The biggest demand area is China and we foresee increasing demand," said Jerry Weinberg, U.S. vice president of Sigma Group, a secondary aluminum smelter and scrap trader in China.

He looks at huge gains in automotive and motorcycle use in Chongqing, where Sigma runs a smelter, as indicative of the kind of growth all over China, making it the top consumer.

Since February, Vazquez said the pace of aluminum demand in the U.S. has accelerated, but China's has slowed somewhat.

"I don't know how long it will last, but that's how it is right now," he said, pointing to indicators like regional aluminum premiums, the Baltic shipping index, London Metal Exchange inventory movements, and alumina spot prices.

"These data suggest that demand should continue to go up for at least the next year and a half," he said.

Renewed inventory restocking has also contributed to increasing aluminum demand.

"We haven't seen even 20 percent of the restocking that we expect. We have pent-up demand in the Western World and unprecedented scrap tightness that has translated into more primary aluminum demand," the analyst said.

Keown said shrinking supply chains represent a fundamental shift in the industry. He cited North American coiled sheet, with historic average inventory of 4 to 4.5 months worth has shrunk over the last 6 months at 2 to 2.5 months.

"As we start to see demand is on us, it's on us a lot quicker than in the past. Because the supply chain has shrunk, there is really not the inventory in the pipeline for customers to feed off of when real demand comes back," he said.

Jack Hockema, CEO of Kaiser Aluminum, said a change in how aircraft are being manufactured as well as increased aircraft production has also contributed to greater aluminum use.

"As inventory reaches equilibrium in the supply chain, we see good, strong continued demand in that area," the CEO said.

Another market that Aleris sells to truck and trailer, which it considers a leading indicator of economic growth.

During the recession, he said, they were not rebuilding fleets. Now, "We're starting to see that recovery. A lot of our suppliers are seeing that as well. Whether it be primary metal or scrap metal, they are trying to find access to trucks."

Finally, employment rates and consumer confidence need to improve to see greater demand. Meantime, Keown said, "We see this as a long, slow, process and not a rocket, for sure.".