The aluminum market should see increased demand
in 2014 thanks to heightened demand from mass-produced vehicles
such as Ford Motor Co.s aluminum-intensive F-150 pickup
But while some metal analysts
predict that better growth in downstream markets as diverse as
transportation and construction should bolster aluminum prices
and premiums, others believe that a modest increase in North
American demand alone wont be enough to soak up a global
aluminum supply glut.
The big issue is all the
new capacity coming on at the same time that you have a
relatively slow world economy, Charles Bradford,
president of New York-based Bradford Research Inc., said.
Its always been the issue: How much supply vs. how
Global primary aluminum capacity
is expected to top 28.8 million tonnes this year, a 3.7-percent
increase from about 27.8 million tonnes in 2013 and up 9.4
percent from 26.3 million tonnes in 2012, according to
International Aluminium Institute data.
The gains come in part as a
result of big expansions in the Middle East, including
Pittsburgh-based aluminum producer Alcoa Inc.s
joint-venture smelter with Saudi Arabian Mining Co.
(Maaden), which is expected to reach an operating
capacity of 740,000 tonnes per year in 2014, and Emirates
Aluminium Co. Ltd. also increasing capacity, Bradford said.
You have more growth in capacity than you have growth in
Also weighing on the market are
swollen inventories at London Metal Exchange-listed warehouses,
John Tumazos, principal of Holmdel, N.J.-based John Tumazos
Very Independent Research LLC, said. These inventories
are like gaining weight. Once you put them on, its hard
to get rid of them.
LME aluminum inventories are
around 5.44 million tonnes, off from a record 6 million tonnes
in late July 2013 but well above the 400,000- to 500,000-tonne
levels seen during the 2004-08 commodity
super-cycle, Tumazos said. Given that even boom
times didnt see a true deficit, an argument could be made
that inventories from 1994built on turmoil in the Russian
economy following the collapse of the former Soviet
Unionnever got erased, he said. I think
it is cavalier to assume that 6 million tonnes of inventory
clears out easily.
Other factors dragging on
aluminum are a strong dollar, big purchases by Chinas
State Reserve Bureauwhich dont show up in LME
warehouse dataand output in China rising faster than
production cuts in the rest of the world, Tumazos said. As a
result, aluminum prices are lower and the Midwest premium has
come off 2 to 3 cents from its peak, putting alumina- and
ingot-smelting margins under pressure. Very Independent
Research forecasts LME aluminum prices of 88 cents per pound
($1,940 per tonne) this year vs. an average of 83 to 84 cents
per pound ($1,830 to $1,852 per tonne) in 2013.
Its moving in the
wrong direction on us, Tumazos said. The outlook
for (2014) is for a continued slow squeeze. ... Prices have
fallen a great deal. Premiums will fall more.
But other analysts predict that
downstream demand gains, particularly in the aerospace and
automotive markets, should give support to prices and
The next model year of Dearborn,
Mich.-based Fords F-150 pickup truck, for example, will
sport an aluminum body when it goes into production in 2014,
said Lloyd OCarroll, principal at OCarroll
Aluminum Bulletin. You are talking about a very
large quantity of incremental demand for that, he said.
And then there are a whole series of other models that
will be converting in the next few years.
North American aluminum
shipments are expected to jump 4 percent to 24.2 billion pounds
in 2014, thanks largely to a fast-growing transportation market
that is expected to see demand increase 10.3 percent to 8.3
billion pounds, Timothy Hayes, principal of New York-based
Lawrence Capital Management Inc., said. Auto is one of
the key drivers of that. Its a combination of a cyclical
recovery in vehicle production along with the substitution of
aluminum for steel, specifically in auto body
The construction market also is
expected to see strong growth in 2014, with North American
aluminum shipments possibly jumping 5 percent to roughly 2.5
billion pounds, Hayes said. That market seemed to hit a
lull in 2013, which I think surprised a lot of people.
But the lull should end in 2014, he said, as the housing market
resumes its recovery at the same time that nonresidential
construction activity improves.
But one big aluminum-consuming
market that isnt facing such bright prospects is
packagingeverything from aluminum foil to beverage
canswhere shipments may slide 1 percent to 4.6 billion
pounds in 2014. Were just not drinking as much beer
and soda as we used to, Hayes said, noting that
health-conscious consumers are drinking less soda while beer
aficionados are switching to microbrews, a market dominated by
Hayes brushed aside concerns
expressed by other analysts and market participants about
regional premiums falling dramatically in response to new,
more-stringent LME warehouse rules. Partbut not
allof the rise in premiums makes sense because the U.S.
is going as far as the (Persian) Gulf to get metal now, whereas
5 to 10 years ago that wasnt the case, he said.
If you go back far enoughto the early
90sNorth America actually had a surplus of metal
and the premium was 1 to 2 cents per pound. We didnt
import any of it. Thats why the premium was so