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LME WEEK: Aluminum Oversupply To Limit Price Rise - Standard Bank

iconOct 13, 2010 10:10
Source:SMM

LONDON, Oct 12, 2010 (Dow Jones Commodities News via Comtex) -- Lack of aluminum producer discipline continues to create a supply and demand imbalance and will prevent any major price rises over the next couple of years, Standard Bank said Tuesday.

Standard Bank forecasts London Metal Exchange aluminum prices to average $2,219 a metric ton in 2010, $2,430/ton in 2011 and $2,510/ton in 2012.

"Although prices have pushed up significantly since late September, where other metals have achieved new two-year highs, aluminum is still struggling to break through the April 2010 high of $2,482/ton," the bank said in a LME week report.

"The current physical market is tight, with a huge amount of reported stocks being tied up in financing deals. However, the large stock overhang continues to lurk in the background, weighing both on sentiment and prices," it added.

The bank forecasts the aluminum market to be in a surplus through to 2012, marking six consecutive years of surplus, despite some output cuts this year at U.S. and European smelters. Production in China was mostly stable this year while it rose in the Middle East, the bank said.

It estimates global capacity utilization around 80% in 2010 with LME warehouse stocks are high at 4.3 million tons and says there are few threats to supply over the next two years.

It warns that while the oversupply will be smaller in 2012, price rises could spur restarts and again increase the surplus size.

A new aspect to the aluminum market that could increase price volatility is the emergence of exchange traded funds for the metal.

"Experiences from the platinum market suggest the impact from an aluminum ETF, if it takes hold, will be to amplify the volatility in the price, particularly around turning points in the supply/demand balance," the bank said.
 

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Aluminum output Aluminum production
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