OSLO, June 23 -- Aluminium prices will remain around $2,000 per tonne in 2010 and in 2011, industry watchers said Tuesday, as oversupply and uncertainty over the state of the global economy offset rising long-term demand.
The price per tonne is seen between about $1,900 and $2,100 over the next 18 months but will be volatile within this range, analysts said.
"Prices will remain volatile because of macro-economic concerns: the euro zone and its sovereign debt and inflation fears in China," Marco Georgiou, a consultant at CRU Analysis, told Reuters on the margins of a metals conference.
Georgiou said strong long-term demand -- with 2010 demand seen 12-13 percent higher on 2009 and 2011 demand up 6-7 percent higher on 2010 -- would be partly offset by rising supply availability. New smelters were being built in the Middle East and other regions.
"The signs are that the demand can't absorb all this new capacity, so there is oversupply," Georgiou said, adding that he saw 2010 aluminium prices averaging $2,000-2,100 overall.
A key issue for prices is the timing of when inventory deals -- by which financial players tie aluminium supply to warehouses -- will end. These are currently limiting the amount of supply made available to markets.
This is unlikely to happen in the coming months, analysts said, as interest rates would need to rise significantly, pushing up the funding costs for these deals.
"It does not seem like interest rates will be rising any time soon, so there is a fair chance that the stocks will stay locked up," Michael Widmer, metals strategist at Bank of America-Merrill Lynch, told the conference.
SHORTAGES AND OVERCAPACITY
Despite overcapacity in aluminium, inventory deals have limited the capacity available to buyers, Widmer said.
"People focus on the overcapacity, and it is all true, but the market is tight because buyers can't get hold of the aluminium they would like right now," Widmer told Reuters.
Widmer said he anticipated aluminium prices to average about $2,100 in 2011.
Aluminium CMAL3 for three months delivery on the London Metal Exchange closed on Tuesday at $1,949 a tonne, from $1,963 on Monday.
Appreciation of the Chinese yuan is expected to affect prices over the longer-term rather than soon, analysts said.
"At the moment the yuan appreciation against the dollar remains very small," Georgiou said.
Aluminium producer Norsk Hydro (NHY.OL: Quote) told Reuters that yuan appreciation, if it brought with it new exports to China, would help balance the global aluminium market. [ID:nLDE65L0AV]
Chinese producer Minmetals said it expects yuan appreciation to impact the aluminium industry only in the long term, while Alcoa (AA.N: Quote) was taking a wait-and-see stance on whether it would have any impact at all.