Aluminum pins 2013 hopes on political fortunes

Dec 31, 2012 | 07:00 PM | Suzy Waite

Tags  aluminum, aluminum market, 2013 outlook, Suzy Waite

The level of uncertainty shrouding aluminum markets heading into the new year was unprecedented, with some analysts prepared to make two price forecastsÑone if the fiscal cliff issue was resolved, and one if it wasn’t.

President Obama and Congress managed to avoid falling off the cliff, but analysts say that while the political resolution should provide some clarity and confidence to markets that will help aluminum demand and pricesÑBarclays Capital Plc has forecast that the London Metal Exchange aluminum cash contract will average $2,315 per tonne this year, while Davenport & Co. LLC is similarly forecasting a cash price of $2,300 per tonne--there are still issues on the table, such as spending and the debt ceiling, that could hinder the markets further down the line.

“Fundamentals softened up (in the fourth quarter). They weakened more than we figured,” Davenport analyst Tim Hayes told AMM. “We haven’t run different scenarios, but certainly if the ... U.S. economy goes into a recession, obviously aluminum prices will be lower. A recession would cause a sizable cut to our aluminum forecast.”

David Gagliano, director of U.S. metals and mining research for Barclays, said that a number of things have to happen for LME aluminum to hit $2,315 per tonne.

The aluminum price doesn’t have much further to fall from its current range before producers will cut more production; three-month aluminum prices ended the year far below the 2012 high of $2,349 per tonne in late February and below many global smelters’ breakeven points. A number of global aluminum producers--including Alcoa Inc., Norsk Hydro ASA, Rio Tinto Alcan and United Co. RusalÑcurtailed production last year, although the cuts have had little impact on prices. And considering how much capacity China continues to bring online, any additional production taken offline this year will be more than offset by additional Chinese capacity, Hayes said. “We know China’s (net) production went up last year compared to 2011 because they keep adding new capacity that’s more than offsetting any curtailments.”....