Aluminum Surplus to Widen as Smelters Restart, Sumitomo Says

Jan. 31 (Bloomberg) -- Global aluminum supply will exceed demand by 5.6 percent this year, spurring lower prices, as idled smelters restart and new capacity comes on-stream, Japan's third-largest trading house said.

The surplus may be 2.4 million metric tons, up from 2.3 million tons predicted in July, Motoi Kamitani, manager of light metal trading at Tokyo-based Sumitomo Corp., which has stakes in smelters in Australia, Brazil, Malaysia and Indonesia, said in an interview Jan. 28. The surplus was 1.3 million tons in 2010.

Aluminum, used in cars, packaging and houses, gained 11 percent last year, making it the fourth-best performer among six base metals on the London Metal Exchange. The price fell to the lowest in a month this week. Aluminum will probably trade between $2,050 and $2,550 a ton in the first half and between $1,950 and $2,450 in the second, Kamitani said.

"This year's surplus may widen because of the restart of idled production sites, especially in the U.S., and output expansion in India, Brazil and Qatar," Kamitani said. Japan is Asia's biggest importer of the metal.

Barclays Capital forecast aluminum for immediate delivery will average at $2,500 a ton, up from $2,172 last year, the bank said in a Jan. 20 report. The metal for three-month delivery in London traded at $2,475 a ton at 10 a.m. in Tokyo and averaged $2,200 a ton last year.

Sumitomo revised its surplus forecast in 2010 lower from an initial estimate of 2.5 million tons as China, the biggest producer, limited power supply to smelters, he said.

China Demand

Deutsche Bank AG projects a surplus of 200,000 tons this year from 670,000 tons in 2010, while Barclays forecast supply may exceed demand by 367,000 tons, up from l36,000 tons last year. Inventories stored in LME-monitored warehouses totaled 4.54 million tons on Jan. 25, versus 4.28 million on Dec. 31.

Total supply this year will be 45.1 million tons and demand will be 42.7 million tons, Kamitani said.

Demand growth in China may slow this year on tightening monetary policy and property regulations, increasing 6.5 percent to 18 million tons after a 21 percent increase last year, Kamitani said.

China's output totaled 15.7 million tons last year, 20 percent higher than a year ago, according to National Bureau of Statistics data on Jan. 20. The country's vehicle sales soared 32 percent in 2010 as stimulus measures and economic growth helped it remain the largest auto market.

Aluminum consumption growth in China may be more than halved this year by a slowdown in the construction and automobile sectors, according to Wan Ling, an analyst at CRU International Ltd. Actual consumption may rise 8.7 percent to 18.21 million tons, compared with growth of 20 percent last year, Beijing-based Wan said Jan. 15.

Idled Production

Chinese smelters have shut 1.6 million tons of production capacity since July because of power restrictions, of which 1.2 million tons is likely to come back online in the first half of 2011, Wan said.

On the supply side, Norsk Hydro ASA, Europe's third-largest aluminum maker, said Jan. 13 that full production at its Qatalum smelter in Qatar may be delayed for eight weeks because of technical problems at a power plant at the site.

Qatalum may reach its 585,000-ton annual capacity in June, Chief Executive Officer Svein Richard Brandtzaeg said Jan. 13. The plant started in 2009 and is at 50 percent of capacity.

Alcoa Inc., the largest U.S. producer, said Jan. 7 it will restore idled production at three U.S. plants, adding 137,000 tons of output this year. The company said in a November investor presentation that usage will climb 13 percent in 2010.

Indian Output

India's aluminum output may gain almost eightfold to 10 million tons by 2020 as companies expand capacity, Mines Minister B. K. Handique said Dec. 1. Current production is 1.3 million tons and will grow to 5 million tons in the next five years, Handique said.

Demand in Japan may grow 1 percent to 2.1 million tons in 2011 amid an export-led recovery, Kamitani said. "Domestic stocks may drop to as low as 160,000 tons or 170,000 tons by the end of March as companies will try to cut holdings before this fiscal year ends," he said.

Japan's aluminum stockpiles gained 6.5 percent in December from a month earlier, the first increase in four months, Marubeni Corp. said Jan. 12. Inventories held in Yokohama, Nagoya and Osaka ports rose to 223,600 tons at the end of last month from 210,000 tons as of Nov. 30, Marubeni said.