LONDON, July 14 -- Demand for aluminum products for use by the auto and aerospace industries in Europe is healthy, Steve Hardcastle, head of client services at Sucden Financial said on Wednesday.
"Consumption outside China will rise by around 6.5-7.0 percent," Hardcastle said at a briefing.
"European semis manufacturers ...are reporting a return to good order books, not only for spot sales for inventory rebuilding, but also for forward fixed price delivery. The main consumption areas are the auto industry, aerospace and extrusions."
Extrusions are long aluminum products often used in the construction industry.
Global auto sales tumbled 13 percent last year. Auto makers and their suppliers have benefited this year from government support.
Latest news came from Germany's BMW (BMWG.DE: Quote), which recently raised its 2010 pretax profit and sales outlook, citing better-than-expected earnings at its automotive business and buoyant luxury car markets around the world.
But even though global consumption of the light metal also used in packaging is expected to rise by more than 10 percent to 39 million tonnes, the market is still likely to see a surplus of 3 million tonnes.
"The issue is that aluminum production has been rising at a steeper rate than demand," Hardcastle said, adding that he expects to aluminum prices to rise to $2,450 a tonne in the fourth quarter.
Three-month aluminum CMAL3 on the London Metal Exchange was trading at around $2,000 a tonne on Wednesday.
"I can't overemphasise the importance of the dollar on metal prices, there is a very close correlation," Hardcastle said. "It is my personal view that the euro EUR= has bottomed and will soon start rising against the dollar."
A weaker U.S. currency makes dollar-denominated metals cheaper for holders of other currencies. Last month the dollar hit $1.1875 against the euro, its highest since March 2006.
Hardcastle expects strong support for aluminum prices at $1,800 a tonne. "That's the level where we start seeing production cutbacks."
Also helping boost aluminum are financing deals to release cash for producers and help banks and investors earn returns in excess of the interest they can earn elsewhere.
Hardcastle estimates up to 80 percent of 4.38 million tonnes of aluminum stored in LME warehouses is tied up in such deals.