Aluminum report forecasts higher demand in 2010

London-based Roskill Information Services has published a report, The Economics of Aluminum (9th Edition), which forecasts higher demand for the commodity in 2010.

China dominates the global aluminum industry, accounting for one third of world production and consumption of primary aluminum. The country is self-sufficient in aluminum, and is approaching self-sufficiency in alumina, but is dependent on imported bauxite.

Power supply issues and production costs could lower production there in the longer term, in which case China could become a net importer of primary aluminum.

Half of the world’s 200 aluminum smelters are in China. In 2007, over 60% of world aluminum output was produced by 14 companies with 100 smelters. The three largest producers are Alcoa, UC Rusal, and Rio Tinto Alcan.

Output began to contract in the second half of last year, and this accelerated in 2009. For the first time in 15 years, world aluminum output is projected to contract this year, dropping by 5%.

Almost 50 aluminum smelter projects, with a total capacity of 20 million tonnes per year, are at various stages of development, but only ten, with a total capacity of 2.8 million tonnes per year, are under construction. Meanwhile, the major producers are idling high-cost and inefficient capacity.

The earliest major project to come on line will probably be Qatalum in Qatar. Last year, a new 300,000 tonne-per-year smelter started operating in Oman, and UC Rusal restarted output in Nigeria.

Production of refined secondary aluminum and aluminum alloy was 8.8 million tonnes per year in 2007, mostly in the developed economies, plus an estimated 2 million tonnes in China. A further 3-3.5 million tonnes of secondary aluminum is recycled directly into end uses. The largest recyclers are Aleris Intl., Novelis, and Hydro Aluminum North America.

Primary aluminum consumption reached 37.2 million tonnes in 2007, while total aluminum consumption, including secondary metal, was about 51 million tonnes. Consumption last year is estimated to have been flat.

Chinese consumption, at almost 30% of world total, is the largest in the world by a sizable margin. About 44% of consumption goes to Asia, 27% to Europe and 27% to the Americas. The major markets are transportation (14%), construction (11%), and packaging (6%).

After expanding by about 27% in 2007, demand in China is estimated to have increased by 8% last year, and to increase 3% this year. Demand in the developed economies is forecast to fall this year, and will either level out or show minimal growth next year. The market will start to recover in the second half of next year, and is projected to grow by 4-5% in 2011. Average growth in the global aluminum market to 2013 is forecast at 2.6% per year, to 58 million tonnes in 2013.

Monthly average cash prices for high-grade aluminum on the London Metal Exchange (LME) fell from US$3,070 per tonne in July last year to US$1,329 per tonne in February as LME inventories grew from 1.1 million tonnes to 3.2 million tonnes. Prices have stabilized at US$1,400-1,500 per tonne in March/April. At presstime, LME inventories are about 4.3 million tonnes.

Lower production, coupled with the end of destocking, is expected to stop or reverse the increase in inventories and raise prices to US$1,500-1,700 per tonne by September / October, possibly reaching US$1,800 by December. The large inventories will continue to weigh on the market until the slide in demand is reversed in early 2010.

Costs rose to almost US$2,000 per tonne because of increases in alumina and power costs. Alumina prices have fallen, but power costs remain high, so for many producers prices in early 2009 were lower than costs.

The availability of low-cost power is the most important consideration in smelter location decisions. New smelters under construction in Qatar and Abu Dhabi take advantage of natural gas resources there.