LONDON, Oct 12 (Reuters) - Aluminium prices could rise further in the short term as restocking across the supply chain overcomes the impact of excess inventory and capacity in the market, JP Morgan said on Monday.
Michael Jansen, executive director of the Commodities Group at the bank, said at the London Metal Exchange seminar that a recovering industrial sector will prompt aggressive restocking next year, underpinning aluminium prices.
"We're getting to the point now where in many fabricators, inventory is lower than leap times. You still need final sales to hold things up but consumers have run down inventory so much they'll have to buy early next year," he said.
On the longer term outlook, however, he said the world was looking at a lower pace of consumption. "In 2010 demand looks OK but not after that. Stocks will trend higher and prices will be subdued."
JP Morgan expects China, the world's biggest metals consumer, will ultimately move into surplus and start exporting the metal. The country is currently raising aluminium output to meet improved consumption levels.
The bank forecasts aluminium prices will average $1,850 a tonne next year compared with $1,608 this year, while by 2014 prices will have risen only to an average $2,000.
It sees the market surplus this year at 1.6 million to 1.7 million tonnes and thinks this surplus will fall to around 600,000 tonnes by next year because of smelter discipline, specifically in the western world.
This will support aluminium prices near term, as will restocking demand at fabricators and growth in the global economy, which JP Morgan believes will average 3.4 percent next year compared with a 2.5 percent contraction this year.
Ultimately, however, it does not believe support for the over-supplied aluminium market, where
LME stocks are at record levels near 4.6 million tonnes, will be sustained, or that the recovery will be strong.
"We getting a V but its very underwhelming," said Jansen.
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