Trends in Primary Aluminum to keep in mind in 2011-2012.
In 2012, the global uncertainty regarding the differential between LME prices and energy rates will increase; not much, but enough to encourage prudence, therefore delays, in investment projects. This except for India where very close integration of energy generation and smelters is high, and both coal and aluminum enjoy a protected and fast growing market. Even in the Middle East, the question whether the best use to make of petroleum or gas is to convert it in aluminum or not is getting more popular.
However, we must keep in mind that since 2000 LME prices are not as reliable as they used to. Andy Home, a Reuters columnist, reminds us that this was the year when the exchange moved from its original mutual not-for-profit status to a shareholder structure. In other words, objectivity is gone, so let’s be careful. Nevertheless, this uncertainty on relative energy and aluminum prices is encouraged by the Fukushima effect, Germany setting the example with a plan to reduce dependence from nuclear. General trend in Europe is: If we move away from nuclear we will need more gas (solar and wind power cannot take over that fast, and will remain expensive per kW capacity and per kWh produced). Putin is very willing to help with gas, and will help, but at a price. Translation for oil & gas exporting countries: Let's sell gas too, unless aluminum prices go real high. Will they? No.
Non-food agriculturals index (NFA i. e. timber, non-food oils, resins, fibers, clothing, energy, cosmetics and plastics, in which the fastest growth is mostly bio-fuels) have been going 50% up from mid-2010 to mid-2011, against 43% for food commodities, only 32% for all metals, 29% for petroleum, and 24% for Gold (The Economist figures). LME Aluminum prices have been going up last 10 years, but not that much up if we forget the big bubble of 2005-2008 when it went close to $3,000. Because world recession is just beginning to show, all metal prices are now shaky except copper. Aluminum still is well above $2,000/tonne but it is not the same dollar as in 2007: And from Sept. 2010 to Sept. 2011, all it did was up then down. Translation: If aluminum price is expressed in kWh as a currency, its price is going down. This is short term, of course but all this hides a deep trend reversal for the next ten years. In 2012 I think it will only begin to show. Paul Robinson (CRU) said at a recent LME seminar that aluminium is top among base non-ferrous metals in terms of consumption growth prospects, followed by nickel, zinc, copper, lead and lastly tin. But Oleg Mukhamedshin, RUSAL's director of corporate development, said in an interview ahead of LME Week that global aluminium prices cannot fall much further, with as much as two-fifths of global production already unprofitable and demand likely to hold up. "Prices for aluminium, in contrast to copper, have reached their minimum." I am pessimistic regarding global growth. It will not materialize; and neither will all the investments needed to address this theoretical demand. Applications of aluminium keep shifting very slowly: 30 years ago aluminum was used 1/4 in automobile, 1/4 in electrical conductors, 1/4 in construction, 1/4 in packaging. Now it is more like 50% automobile, and the electric or hybrid car will favor that. The world auto market may very well calm down but the shift towards fuel efficient cars, electric and hybrid cars will push aluminum applications. China, where the auto industry is still growing strongly, will according to RUSAL become a net importer of aluminum in "some quarters" of 2012. Translation: In China, despite fast growth (now slowing down), investment is moving downstream from primary industries.
What the world badly needs is new technology producing aluminum with less energy. Of course recycling is gaining ground, since it costs in energy only a few % of what primary metal do. Innovative smelting technologies are now on the horizon. We think their time has come, but here we get into longer term... More on this later this winter.
Conclusion for our subscribers who manufacture equipment for smelters: Look as usual at China, India, Middle-East, Russia, but also look at minor revampings wherever energy contracts have been renewed in a way that guarantees bare survival for the smelter, or wherever an old smelter has its own power plant. All greenfield smelter projects in countries who aren't yet aluminum producers are delayed.
However, we must keep in mind that since 2000 LME prices are not as reliable as they used to. Andy Home, a Reuters columnist, reminds us that this was the year when the exchange moved from its original mutual not-for-profit status to a shareholder structure. In other words, objectivity is gone, so let’s be careful. Nevertheless, this uncertainty on relative energy and aluminum prices is encouraged by the Fukushima effect, Germany setting the example with a plan to reduce dependence from nuclear. General trend in Europe is: If we move away from nuclear we will need more gas (solar and wind power cannot take over that fast, and will remain expensive per kW capacity and per kWh produced). Putin is very willing to help with gas, and will help, but at a price. Translation for oil & gas exporting countries: Let's sell gas too, unless aluminum prices go real high. Will they? No.
Non-food agriculturals index (NFA i. e. timber, non-food oils, resins, fibers, clothing, energy, cosmetics and plastics, in which the fastest growth is mostly bio-fuels) have been going 50% up from mid-2010 to mid-2011, against 43% for food commodities, only 32% for all metals, 29% for petroleum, and 24% for Gold (The Economist figures). LME Aluminum prices have been going up last 10 years, but not that much up if we forget the big bubble of 2005-2008 when it went close to $3,000. Because world recession is just beginning to show, all metal prices are now shaky except copper. Aluminum still is well above $2,000/tonne but it is not the same dollar as in 2007: And from Sept. 2010 to Sept. 2011, all it did was up then down. Translation: If aluminum price is expressed in kWh as a currency, its price is going down. This is short term, of course but all this hides a deep trend reversal for the next ten years. In 2012 I think it will only begin to show. Paul Robinson (CRU) said at a recent LME seminar that aluminium is top among base non-ferrous metals in terms of consumption growth prospects, followed by nickel, zinc, copper, lead and lastly tin. But Oleg Mukhamedshin, RUSAL's director of corporate development, said in an interview ahead of LME Week that global aluminium prices cannot fall much further, with as much as two-fifths of global production already unprofitable and demand likely to hold up. "Prices for aluminium, in contrast to copper, have reached their minimum." I am pessimistic regarding global growth. It will not materialize; and neither will all the investments needed to address this theoretical demand. Applications of aluminium keep shifting very slowly: 30 years ago aluminum was used 1/4 in automobile, 1/4 in electrical conductors, 1/4 in construction, 1/4 in packaging. Now it is more like 50% automobile, and the electric or hybrid car will favor that. The world auto market may very well calm down but the shift towards fuel efficient cars, electric and hybrid cars will push aluminum applications. China, where the auto industry is still growing strongly, will according to RUSAL become a net importer of aluminum in "some quarters" of 2012. Translation: In China, despite fast growth (now slowing down), investment is moving downstream from primary industries.
What the world badly needs is new technology producing aluminum with less energy. Of course recycling is gaining ground, since it costs in energy only a few % of what primary metal do. Innovative smelting technologies are now on the horizon. We think their time has come, but here we get into longer term... More on this later this winter.
Conclusion for our subscribers who manufacture equipment for smelters: Look as usual at China, India, Middle-East, Russia, but also look at minor revampings wherever energy contracts have been renewed in a way that guarantees bare survival for the smelter, or wherever an old smelter has its own power plant. All greenfield smelter projects in countries who aren't yet aluminum producers are delayed.
posted by Andre Teissier du Cros at 8:48 AM
