Whether the climate for aluminum these days is seen as
partly cloudy or partly sunny depends on whos doing the
forecasting and when theyre doing it.
In mid-January, it was announced that aluminum orders in
North America rose 18.1 percent in December from the previous
month on the back of some economic recovery in the United
States, according to Davenport & Co. LLC data based on
seasonally adjusted figures from the Aluminum Association. That
led to some optimism.
But industry giant Alcoa Inc. forecast slower-paced growth
in 2012 following its fourth-quarter 2011 earnings results,
which included the aluminum producers first quarterly net
loss since the beginning of 2010. That led to some
On the other hand, the Aluminum Association said that
although the construction sector had lagged for the light
metal, the association was hoping green
construction could provide some growth. Those markets
arent very strong right now, but we think its good
timing to do marketing and analytical work to position
ourselves in the future and lay down the groundwork for
that, Aluminum Association president Heidi Brock
And so uncertainty continues to dominate the aluminum market
outlook, although an increasing number of producers, traders
and analysts are predicting modest growth for the industry.
After falling in four of the past five months, orders
showed a strong increase in December, which keeps orders in a
choppy, subpar uptrend in our view, analysts at Richmond,
Va.-based Davenport said in a research note. Davenport expects
orders to continue moving higher this year as the economy
continues to recover. The economy appears to be building
on the momentum that occurred in the fourth quarter.
Additionally, the recent rise in aluminum prices, if it
continues, may spur buying by customers in the first
quarter, Davenport said.
Total aluminum orders last year rose 6.5 percent compared
with 2010. All categories saw an increase, barring foil, which
dropped 5.6 percent, and can sheet, which slipped 1
Despite its earnings disappointment, Pittsburgh-based Alcoa
expects global aluminum demand to increase 7 percent and North
American demand to grow 3 percent, Alcoa chairman and chief
executive officer Klaus Kleinfeld said during an earnings
conference call. The company had forecast 2011 growth of 12
Those expectations come on the heels of a year of falling
aluminum prices and production curtailments at global
facilities. Those falling prices and increasing production
costs required the company to act aggressively,
chief financial officer Chuck McLane said during the conference
Early this year, the company announced that it would close
or curtail 531,000 tonnes of annual smelting capacity. The
company had warned in November that such a move was a
possibility if aluminum prices continued to decline.
These decisions are never easy, Kleinfeld said.
(We) work very, very hard to find solutions to minimize
the impact on communities as well as our employees.
Alcoa posted a net loss of $191 million for the three months
ended Dec. 31, in contrast to net income of $172 million in the
third quarter and $258 million a year earlier. Despite the
loss, the company remains optimistic on some fronts. Alcoa is
forecasting demand growth of 10 to 11 percent in the aerospace
sector and 3 to 8 percent in the automotive industry. Overall,
the company projects a global primary metal deficit of 600,000
tonnes in 2012.
Alcoas news was just the latest in what has been
up-and-down developments over the past six months or so. Equity
markets fell in August, with the Dow Jones Industrial Average
dropping more than 4 percent, while fears of a double-dip
recession mounted, prompting aluminum customers to delay
signing 2012 contracts despite executives preaching calm during
the earnings season.
It almost seems like were worrying ourselves
into another recession, Kleinfeld said in an October
interview with CNBC. We see a world frozen by fear and
cooling-down growth. At the time, Kleinfeld reaffirmed
his original forecast that the aluminum industry would
experience 12-percent growth in 2011, adding that he expected
China to lead the way in 2012.
Similarly, top executives at both Kaiser Aluminum Corp. and
Century Aluminum Co. remained optimistic despite disappointing
third-quarter results, and offered strong forecasts for the
automotive, aerospace and transportation sectors.
But others remain wary of Europes evolving debt
crisis. Orkla ASA president and chief executive officer
Bjørn Wiggen preached caution during the Norwegian
companys third-quarter earnings conference call. Orkla
subsidiary Sapa is seeing a trend of softening markets in
the extrusion business in all regions in Europe as well as
North America, he said.
And while the price of aluminum could fall further in the
near-term, most agree that it will go up in 2012.
(Aluminum) is pretty cheap now. Short-term it could go
lower, but medium- to long-term, its too low, one
At some point in the near-term, the price will start
to turn, Davenport research analyst Tim Hayes said.
People will gain confidence in 2012 once its shown
that the economy is not in a recession, then hopefully this
negative sentiment will dissipate and that will take prices
higher. Consumers are not retrenching as much as the media is
suggesting, and were continuing to add jobs, albeit at a
frustratingly slow pace.
Few traders believe aluminum premiums will deviate much in
2012 as London Metal Exchange-listed warehouses continue to
hold on to millions of tonnes of aluminum, keeping availability
tight and prices high.
Even though warehouses holding more than 900,000 tonnes of
metal will have their load-out rates increased to 3,000 tonnes
per day starting in April from 1,500 tonnes per day currently,
most do not expect it to have an impact on premiums as long as
interest rates remain near zero, which will encourage producers
and traders to continue storing aluminum in warehouses under
financing deals, provided the contango on the LME remains in
Most market participants agree that China is the country to
watch in 2012. Kleinfeld, who is confident that China will
drive aluminum growth, said Chinas story is interesting
because the country does not have a sustainable aluminum
industry, given high power costs, which could provide
opportunities for Western companies to partner with Chinese
firms. Some 15 of 22 provinces in China have seen power prices
rise, while 37 percent of Chinese alumina refineries are in the
top quartile of aluminum cost-curve production.
Thats not a sustainable industry structure,
There are, however, opportunities for Chinese
infrastructure. We think the China infrastructure
buildout has several more years left, Hayes said,
forecasting 14-percent growth. The interior of the
country is far from being built. That will drive all
Gayle Berry, vice president of commodities research at
Barclays Capital, agreed. In terms of China, Im
very positive, she said at a Metal Bulletin
conference last fall, adding that impressive growth rates there
were offsetting soft vehicle production sales.
Still, some point to a potential real estate bubble forming.
We need to watch China, one market participant
said. Theres evidence that says the Chinese economy
is slowing down. The real concern is about the extent to which
their building and property market has been overheated. . . .
Its key to whats going to happen in terms of