{"id":59572,"date":"2012-02-28T14:20:34","date_gmt":"2012-02-28T03:20:34","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/02\/28\/aluminium-outlook-dependent-on-china-europe\/"},"modified":"2012-02-28T14:20:34","modified_gmt":"2012-02-28T03:20:34","slug":"aluminium-outlook-dependent-on-china-europe","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/02\/28\/aluminium-outlook-dependent-on-china-europe\/","title":{"rendered":"Aluminium Outlook Dependent On China, Europe"},"content":{"rendered":"

\n\t – European issues have impacted on aluminium<\/span> market
\n\t – Cancelled<\/span> warrants impacting on market balances
\n\t – Reshuffling of stocks limiting physical availability of aluminium<\/span>
\n\t – Chinese smelting capacity growth could limit price increases
\n\t – Deutsche and Citi<\/span> update aluminium<\/span> price forecasts<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tWhile the future of the European Union has come into question given the sovereign debt issues of the region, Deutsche Bank remains of the view Europe will stay united as financial stabilisation<\/span> will eventually be achieved.<\/p>\n

\n\tAssuming this occurs Deutsche expects risks relating to the region may be mitigated, while growth will be supported. Such a scenario would be important for metal demand in Europe. As Deutsche notes, such a scenario would also likely help boost sentiment in Asia where aluminium<\/span> fabricators in particular have adopted a cautious stance given the difficulties in what is a key export market.<\/p>\n

\n\tOne catalyst that could improve aluminium<\/span> market conditions in the view of Deutsche Bank is improving sentiment in Europe in both the current and upcoming quarters. The next few months should offer evidence of slightly stronger aluminium<\/span> consumption in Europe. <\/p>\n

\n\tAs well, any re-acceleration of Chinese growth, and as a consequence exports to Asia from Europe, would also be viewed favourably<\/span>.<\/p>\n

\n\tCapacity closures are another potential positive catalyst, as smelters continued to be pressured by tough market conditions. Any continuation of existing supply pressures could help tighten the aluminium<\/span> market in the near-term, in Deutsche's view.<\/p>\n

\n\tAt present aluminium<\/span> inventories in Europe are extremely elevated, but at the same time Deutsche notes actual physical availability of the metal is quite low and appears likely to decline. This is due to high metal financing incentives at present, which is seen as likely to continue to tie up metal in LME<\/span> warehouses. <\/p>\n

\n\tThe other factor in favour<\/span> of an improvement in the aluminium<\/span> market is Deutsche's view the metal is becoming an attractive target asset. This reflects both very accommodative monetary policy and inflexible LME<\/span> warehousing rules.<\/p>\n

\n\tDeutsche notes a recent spike in cancelled<\/span> warrants for aluminium<\/span> in LME<\/span> warehouses, while normally a response to improved demand conditions, in this case is a reflection of the fact metal is not located where it needs to be to extract maximum returns from financing. This is due to aluminium<\/span> being used as a financing asset.<\/p>\n

\n\tHow quickly this current trend comes undone is, in Deutsche's view, down to how long it takes for a possible future change in profit motive. This could be driven by higher opportunity costs for storing aluminium<\/span> due to changes in interest rates for example, or a tightening in market conditions.<\/p>\n

\n\tIn assessing current aluminium<\/span> market fundamentals, Deutsche expects average LME<\/span> cash prices of US$2,325 per tonne<\/span> thus year, US$2,300 per tonne<\/span> in 2013 and US$2,350 per tonne<\/span> in 2014.<\/p>\n

\n\tCiti<\/span> has also reviewed aluminium<\/span> market fundamentals, concluding the perceived tightness is the result of a surge in cancelled<\/span> aluminum warrants in LME<\/span> warehouses over the past month. Cancellations<\/span> are now at 1.6 million tonnes<\/span>, which is 31% of total LME<\/span> aluminium<\/span> inventory.<\/p>\n

\n\tIn Citi's<\/span> view the cancellations<\/span> are not being driven by stronger demand, but rather are an attempt to push physical market premiums higher as warehouses shuffle their stocks. Adding to the sense of market tightness has been further capacity closures by Alcoa and Rio Tinto ((RIO)), among others.<\/p>\n

\n\tTaking a longer-term view of the market, Citi<\/span> suggests the key for aluminium<\/span> prices remains continued growth in Chinese smelting capacity. Total Chinese aluminium<\/span> production is forecast to grow by at least 12% this year, an increase that is unlikely to see China short of the metal.<\/p>\n

\n\tAs a result, Citi's<\/span> view is for limited aluminium<\/span> price upside in the medium-term. Forecasts reflect this, as Citi<\/span> expects average LME<\/span> prices of US$2,500 per tonne<\/span> thus year and US$2,275 per tonne<\/span> in 2013. <\/p>\n

\n\t
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While cancelled warrants have limited availability of aluminium in LME warehouses China and Europe remain keys to the market longer-term.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59572"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59572"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59572\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59572"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59572"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59572"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}