Aluminium likely to remain volatile in first half of 2012

 

 

Prices accentuated in first half of 2011 to reach its two year high of USD 2803 a tonne, at the London Metal Exchange translating thereby at INR 124.15 a kg on the Multi Commodity Exchange on back of growth optimism worldwide. But the metal failed to carry the strength as euro zone crisis took over and slackening manufacturing activities.

 

 

The metal market experienced paradigm shift of production centre as its output headed towards the eastern side of the globe due to rise in power costs leading to closures by smelters in the US and Europe. Alumina prices treaded higher during first half of 2011, even though Chinese and global production increased due to re-stocking activity. However, stocks in LME hit a record high above 4.71 million tonnes in May, backed by turbulence in Europe and the US which impacted the trend later in the year.

 

 

Mr Jayant Manglik president retail distribution of Religare Securities Ltd said that “However, China is set to adopt a path of monetary loosening policy in 2012 to avoid hard landing of its economy which may prop up prices coupled with the renewal in demand from Japan, once manufacturing activity recommences. The transportation sector will be the single largest end-use market for aluminum demand. Despite high inventories of aluminum in warehouses, the demand growth and looming supply issues in China may push prices northward in the second half of 2012.”

 

 

According to the World Bureau of Metal Statistics, global primary aluminum consumption rose 5.% YoY to 28.1 million tonnes between January to August this year. Consumption in China during the first eight months of this year rose 6.2% while growth in Germany during the same period rose by a whopping 15%

 

 

China accounts for a whopping 40% share in global aluminum consumption and the EIU expects growth in the country to slow to 6% in 2011 as compared with a rise of 10.5% in 2010. Economic prospects for China look weak considering the tight lending market scenario, weak demand for cars and a grim global economic scenario.

 

 

Japan which accounts for 5% of world consumption is expected to witness a slowdown on the back of problems in the manufacturing supply chain after the earthquake and tsunami that struck the nation in March'11.

 

 

India, accounts for 4% of global aluminum demand, witnessed a decline of 10.5% YoY between January to August. EIU expects a decline in Indian aluminum consumption by around five per cent. But in 2012 and 2013, demand is forecast to rise around nine per cent. Producers including Hindalco and Nalco are set to see a turnaround in sales in the second half of 2012.

 

 

Mr Naveen Mathur associate director of Angel Broking said that “Rising inventories coupled with a comfortable supply-side scenario is expected to act as a negative factor for aluminum in the coming year. But with improvement in the US economic scenario and expected decline in interest rates in China, sharp downside in prices will be cushioned in the second-half of the year.”

 

 

Aluminum prices on the LME slumped by more than 20%, with major downside pressure seen in October and November. Average monthly prices of the metal slipped from USD 2687 a tonnes in April to USD 2058 a tonnes in December translating thereby at INR 119 a kg and INR 108 a kg in rupee term.