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Aluminium between 2,300 and 2,500 dollars in the medium-term

Le 08 septembre 2011 par Daniel Krajka
* Mots clés :  Entretien

ENTRETIEN  Interview with David Wilson, Director of Metal Research at Soci√©t√© G√©n√©rale

Is aluminium still the best defensive metal?
Probably, yes. At least it is the metal with fundamentals less negative than copper or the other base metals. It is an energy hedge; its price is supported by the cost of energy, which accounts for around 50% of its total production costs. While there is good cost related support, it is difficult to see Aluminium prices rallying significantly from current levels given the current demand outlook, which point to a more neutral view for aluminium, whilst in comparison I am much more pessimistic concerning copper.


How do you explain the slowdown of aluminium consumption in China?
The China’s economy keeps on growing, but at a slower rate. There is a noticeable slowdown from aluminium consuming industries, notably auto and construction sectors, and now railways. But the influence of China on the outside markets is limited. China is almost self-sufficient with regards to aluminium and has sufficient capacity to meet demand growth. The price of aluminium in China should be supported by the high costs of its marginal producers.


Is there a future for aluminium production in Europe?
There are two exceptions Norway and Iceland who enjoy low-price hydro or geothermal electricity in abundance. For the other countries, Germany, Italy, France, Spain and the UK, the situation is much more difficult. Aluminium production has been migrating to lower energy cost areas; this is typified by the development of huge new capacities in the Middle East, using natural gas as a cheap energy.
The mature economies have advantage making secondary aluminium because they have big resources of scrap and their collection is well organized. Europe and the US have been exporting great quantities of aluminium scrap to China and other emerging markets.
Aluminium consumption in Europe and the US rebounded sharply in the first quarter of the year, but concerns over debt problems and the general economic slowdown have impact demand in the second half of 2011.


Is north-America production going to rebound?
The situation is different in the USA and Canada, where Canadian smelter are largely powered by hydro-electric energy resources. Some US smelters have been restarted through this year, but it is questionable whether they will be making margins now that aluminium prices have dipped below $2 400/ tonne.


When will the aluminium market rebalance?
A few months ago we were expecting a progressive rebalancing of the aluminium market. With the slowing down of the global economy and the risks of recession in the US and in Europe, the rebalancing will have to wait till 2014.


What are your price forecasts?
Société Générale is actually working on new forecasts, working on a probability of 40% of a double dip in the US and even more in Europe. We are expecting a price correction but it will be limited by the price of energy and the costs of production of the marginal producers. With financial deals still absorbing surplus metal, the price of aluminium will be moving between 2 300 and 2 500 dollars. It will be difficult for the metal to break higher till the end of 2012. 

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