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Tuesday, May 31, 2005

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Industry & Economy - Aluminium

China swings aluminium market

G. Chandrashekhar

Mumbai , May 30

LATEST data from the International Aluminium Institute and other sources show that aluminium production grew by 3.5 per cent year-on-year in the first four months. It was China driving the growth, accounting for as much as 2,72,000 tonnes of the 3,34,000 tonnes year-on-year increase in global growth.

Chinese aluminium production was up 12.9 per cent to 2.377 million tonnes (mt) in January-April (2.105 mt). Will China's production grow or level out?

Despite the impact of high alumina prices, power shortages, enforced closure of some capacity and changing tax treatment of exports, Chinese aluminium producers have not only maintained production, but have also actually been able to raise output.

However, there are signs that this is starting to get more difficult, according to Mr Adam Rowley, metals analyst with Macquarie Research (Metals and Mining), who pointed out that although Chinese aluminium production was up year-on-year in the first four months, a comparison with the final four months of last year shows production was actually down modestly over that period.

Aluminium production during September-December 2004 was an estimated 10.007 mt that declined to 9.919 mt in the first four months of the current year. Interestingly, the decline of 88,000 tonnes in output is almost entirely accounted for by China where production fell to 2.377 mt from 2.463 mt.

Meanwhile, a drop in alumina - aluminium prices has hit the spot market. LME aluminium prices have retraced from a high of $2,000 a tonne in mid-March to just above $1,700 a tonne. Aluminium smelters have reportedly withdrawn from the spot alumina market, resulting in a pullback in spot prices by about $50 a tonne.

While the underlying demand/supply fundamentals of the market remain tight, the key issue for the spot alumina price in the coming months will be the aluminium price (determining ability to pay) and Chinese aluminium production growth.

China dominates the spot market for alumina (with most other aluminium producers largely locked-in under long-term contracts), and anything that impact on Chinese aluminium production growth, will affect the spot alumina market, the analyst pointed out. Like with many commodities, China remains a critical swing factor in the aluminium market.

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