World aluminum prices rise

Speculation, not demand, is the reason, analysts say. World aluminum spot prices have averaged 88?/lb this month on the London Metal Exchange, the highest monthly average since last October, but three-month futures prices are stuck at 89?. So, market economists suggest that transaction prices may have peaked as weak fundamentals are catching up with the speculation-driven global marketplace. One aluminum trader tells industry newspaper American Metal Market that "there's been a lot of investment fund money thrown into the LME recently, which is the No. 1 reason we've been seeing prices" 26?/lb higher than at the start of the year. Data from the Aluminum Association and the International Aluminium Institute show that supply/demand fundamentals haven't been driving the market these past eight months as much as speculative investments. "Demand is still fairly weak," an aluminum trader says. "Investors want to have commodities as part of their portfolios. It's the whole metal basket that's been bought, and that's given more support to aluminum than should be there." Analyst Fraser MacDonald of Metal Bulletin Research writes that recent aluminum price gains "have been supported by increased investment demand for the metal on stronger market sentiment." However, he adds, "the fundamentals of the industry do not support these gains" since demand is only slowly picking up as the economies recover in key industrial nations. An Associated Press report says prices have wavered recently, trading in a fairly tight range amid lingering doubts about the strength of the economy. And the notion that aluminum prices might have gotten ahead of themselves is supported by new statistics from the Aluminum Association, which show a sharp decline in aluminum demand in the first half of the year. According to the Arlington, Va.-based trade group, aluminum demand in the U.S. and Canada totaled 8.57 billion lb in the first half, down 26% from the same period a year earlier. Demand for semi-fabricated mill products was off 23%, totaling 6.12 billion lb. North American apparent consumption--mill shipments plus imports less exports--was 7.29 billion lb at midyear, 27% below the 9.95 billion lb in the same period of 2008.