Aluminum Surplus Seen More Than Expected in 2010, Sumitomo Says

TOKYO, Aug. 23 -- Global aluminum production may outstrip demand this year by more than expected because of expansion led by China, the world's biggest supplier and consumer, Japan's third-largest trading house said.

"We've revised up the forecast as concern over a double- dip recession eases and China's supply appears to be greater than we expected earlier this year," Motoi Kamitani, Tokyo- based Sumitomo Corp.'s manager of light metal trading, said in an interview on Aug. 20.

Aluminum, used in cars, packaging and houses, declined 11 percent in London in the first half as supply exceeded demand by 314,000 metric tons, the World Bureau of Metal Statistics said on Aug. 18. Prices jumped 45 percent in 2009, the first annual increase since 2006, as stimulus measures boosted demand. China overtook the U.S. last year as the biggest automobile market.

Sumitomo raised its 2010 aluminum forecast by 32 percent to a 2.5 million-ton surplus from its January estimate of 1.9 million tons, Kamitani said. This compares with an estimated surplus of 1.8 million tons in 2009, he said. Supply may outstrip demand by 2.3 million tons in 2011, he said.

China's demand may increase 21 percent to 17.3 million tons in 2010 from last year, up 4.8 percent from the January projection of 16.5 million tons, he said.

Chinese Demand

"It's highly possible that China may turn to a net importer from 2012 as the country's demand will exceed production amid declining domestic stockpiles," Kamitani said.

China's auto sales may rise to 16 million this year, the China Association of Automobile Manufacturers said Aug. 10, boosting its forecast from a previous estimate of 15 million. The State Information Center also said in April auto sales may rise 17 percent to 16 million from a record 13.6 million in 2009.

China's aluminum output may jump 29 percent from last year to 17.4 million tons, up 5.5 percent from the January forecast, he said.

The country has been producing 1.3 million to 1.4 million tons a month since the second half of last year following a rise in prices, from 800,000 to 900,000 tons a month in the first half of 2009, he said.

"There's still a room for a further increase as the country has an annual capacity of 20 million-22 million tons," he said.

Japan Buyers

Demand in Japan, Asia's largest importer, may also expand 17 percent to 2 million tons from last year, up 7 percent from the previous estimate, he said. Demand increased in the auto sector after the country's subsidy program exempted purchases of electric, hybrid, natural gas and some diesel vehicles from taxes. Tech sector exports also increased, he said.

Aluminum buyers in Japan may win a cut in fees from major producers for the October-to-December period as charges for immediate delivery fell to $110 a ton and traders may be forced to sell the metal amid rising costs to maintain stockpiles, Kamitani said. It would be the third straight quarterly decline, he said.

Premiums for the third quarter were set at $120 to $122 a ton over the London cash price, down from $122 to $124 in the previous quarter, three executives involved in the negotiations said in early June. The fee was $125 to $130 in the first quarter, the highest level in at least 14 years.

The metal climbed 0.8 percent to $2,056 a ton at 11:44 a.m. in Tokyo.