prices slumped 62 percent in seven months from a record ,380.15

Posted by tjdetai on December 26th, 2015

As production outstripped demand, prices slumped 62 percent in seven months from a record ,380.15 in July 2008. That drop and the worst global recession since World War II led to a shutdown of capacity. “Production cuts have only been temporary,” Michael Widmer, head of metals research at Bank of America Merrill Lynch in London, said in a report earlier this month. “Looking at recent announcements of production restarts and the current project pipeline, we are concerned that the aluminum market may remain structurally weak.” Gross, Tillerson, Bernanke In March, 7.3 million tons of capacity was offline, or 19 percent of 2008 production, Barclays estimated. Now, China is reversing 3.5 million tons of cuts and starting another million tons of new capacity, according to the bank. China is “gearing up for export that doesn’t find an end consumer,” Pimco’s Gross said. The “systemic risk” of new asset bubbles in global economies and markets is rising, he wrote in his December investment outlook posted on the firm’s Web site Nov. 19. Exxon’s Tillerson said he couldn’t explain current oil prices because they no longer reflected supply and demand.

Federal Reserve Chairman Ben Bernanke said Nov. 16 that it’s “not obvious” U.S. asset prices are out of line and indicated the central bank’s extended period of near-zero interest rates may persist amid economic “headwinds.” Some excess aluminum will be absorbed by China, said Jorge Vazquez, vice president at the aluminum unit of Harbor Intelligence in Laredo, Texas. Harbor forecasts demand will outstrip supply by 380,000 tons next year and prices will average ,700, the second-highest estimate in the Bloomberg survey of 2010 prices. Harbor said in April that aluminum would reach ,984 by the end of the year. ‘Money Flow Game’ China’s economy will expand 9.5 percent next year, according to the median of 21 economists surveyed by Bloomberg. That’s faster than this year’s estimated 8.3 percent and more than three times the anticipated 2.6 percent pace in the U.S. “I’m leaning on the bullish side,” said William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “There’s also just a desire for hard assets right now and all of the industrial metals are going to benefit from that. It’s very much a money-flow game right now, and not necessarily one based on fundamentals.” Commodities will likely attract a record billion this year as investors seek to diversify their assets, Barclays said Nov. 19. That’s helped stoke prices for everything from copper to zinc. Lead added 141 percent this year as stockpiles tripled and copper rose 126 percent as inventory expanded 25 percent. Copper Surplus Copper production will outpace demand by 344,000 tons this year and 210,000 tons next year, Barclays estimates. Refined copper imports by China, the world’s largest consumer, slumped 40 percent last month, according to customs office data today. Aluminum demand will grow 8.2 percent next year, Barclays estimates. Premiums for metal, a gauge of demand, are already increasing in Europe, the U.S. and Japan, according to London- based researcher Brook Hunt & Associates Ltd.

The 2010 average aluminum price of ,885 forecast in the Bloomberg survey would still be 14 percent higher than this year’s average of ,650. That recovery is a relief to United Co. Rusal, Alcoa Inc. and Rio Tinto Group. Alcoa, based in New York, will earn 63 cents a share next year, compared with a 2009 loss of 75.5 cents, according to the median of eight analyst forecasts compiled by Bloomberg. The company last week said it would idle two smelters in Italy, increasing the amount of curtailed capacity to 24 percent of its total. Improving Profits Improving profits and rising output may coincide with a release of stockpiles onto the market. As much as 75 percent of the warehoused metal monitored by the LME is tied to transactions that may unwind, according to London-based research group CRU. The proportion may drop closer to 50 percent of the total next year, CRU estimates. “This is a financial-market driven move at the moment rather than a fabricator and manufacturers’ move, so it is very dangerous to call a top,” said Sean Corrigan, the chief investment officer of Diapason Commodities Management SA in Lausanne, Switzerland. “Once this momentum has exhausted itself, the background picture is not that positive.”

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