Feb 1, 2012 -- A global aluminum surplus may shrink to the lowest level since 2007 as major producers cut output amid soaring energy costs and sluggish demand, said Japan’s third-largest trading house.
Supply will exceed demand by 941,000 metric tons this year, down 42 percent from 1.61 million tons in 2011, said Shingi Yamagiwa, manager of light metals trading at Sumitomo Corp. (8053), which has stakes in smelters in Australia, Brazil, Malaysia and Indonesia. The surplus was 770,000 tons in 2007, he said.
Aluminum, used in cars, packaging and houses, has declined 12 percent in the past year, hurting producers such as Alcoa Inc. (AA), Rio Tinto Group (RIO) and United Co. Rusal (486), which are cutting output. Alcoa, the largest U.S. producer, reported its first loss in two years this month and said China may use 70 percent of its capacity in 2012.
"We’ve seen an increase in production costs for aluminum since 2009, when producers cut output after prices fell below $1,500 a ton,” Yamagiwa said in an interview on Jan. 30. “We now have output cuts by high-cost producers as prices fell below $2,000 a ton.”
The metal may decline as much as 15 percent to $1,900 a ton in the first half, he said. Aluminum for three-month delivery on the London Metal Exchange rose 0.3 percent to $2,245 a ton at 12:08 p.m. in Tokyo, recovering from a 17-month low of $1,955.75 on Dec. 14.
Global supply may increase 3.8 percent to 46.6 million tons this year and demand may grow 5.5 percent to 45.7 million tons, Yamagiwa said. Demand in China, the world’s top consumer, will increase 8 percent to 19.8 million tons, while output climbs 6.5 percent to 19.7 million tons, he said. Japan is Asia’s biggest importer of the metal.
Rusal, the world’s largest aluminum producer, may cut output 6 percent in the next 18 months, Chief Executive Officer Oleg Deripaska said Jan. 27. Rusal has an annual capacity of 4.7 million tons a year. Low prices may force as much as 3 million tons of global capacity to be closed or mothballed, Deripaska said in December.
Alcoa last month said it would halt 12 percent of its global capacity and Rio, the world’s third-biggest producer, said in November it would shut its Lynemouth smelter in England. Norsk Hydro ASA (NHY), Europe’s third-largest producer, said Jan. 10 it may take some capacity offline at its smelter near Newcastle in Australia.
Aluminum’s marginal cost of production will be a “key determinant” of prices over the next three years amid high inventory levels and low capacity-utilization rates, said RBC Dominion Securities Inc. The metal’s “fundamental price support” is around 95 cents a pound ($2,094 a ton) to $1 a pound, analysts including H. Fraser Phillips, said on Jan. 24.
Producers have closed almost 1.6 million tons of smelting capacity in about the past month, Barclays Capital said. About 3.6 million more tons of capacity is “at risk” if prices don’t rise significantly, Nicholas Snowdon, an analyst at the bank, said Jan. 19. About 250,000 tons of capacity was idled in China, or less than 1 percent of the domestic total, he said.
"While China’s aluminum demand will stay balanced in the short term, the country may become a net importer in the long term on surging costs for energy and raw-materials such as bauxite and alumina,” Sumitomo’s Yamagiwa said. Bauxite is turned into alumina, which in turn is refined into aluminum. About four tons of the mineral is used to produce one ton of metal.