Aluminium outlook positive for 2014, China deciding factor

Aluminium outlook for 2014 appears positive with consumption to grow by 6% as in 2013 but new capacity creation despite shut down of inefficient plants could have a bearing on market. China, the largest consumer and produce of the metal would be a deciding factor for the commodity, according to Motilal Oswal Commodities in a monthly insight report.

Aluminium prices on the LME jumped to its highest level in eight months, as a series of capacity cutbacks by top producers underpinned the market. And just a couple of weeks ago, aluminum prices were hitting their 4 year lows on excess material stocked up in inventories and the premiums set to go down from April 1st.

Aluminium is one of the most widely consumed industrial metals and is used in the transportation, beverage can and construction industries. The price reached $3,114 a ton in 2008, shortly before the financial crisis, but the build-up of vast stockpiles, estimated at more than 10m tons, has depressed prices since. Nearly 5.5m tons of those inventories sit in LME-registered facilities.

The oversupply of aluminum in China is expected to have run up to around 750,000 tons in Q1 even though there might be some rigging in the numbers, considering some catch-up happening in reporting due to the Chinese New Year. China's aluminium smelters are likely to shut about 2 million tons of operating capacity in the coming months as they try to limit losses amid falling prices and dwindling government support. The capacity cuts will hopefully trim China's supply growth, slowing the buildup of metal that has weighed on global prices.

In China, some 400,000-500,000 tons of capacity had already closed so far this year and the idle capacity could expand to 2 million tons by the second half of the year. More than two million tons of new capacity that was scheduled to come on-stream in 2014 is expected to be delayed probably to next year, though another two million tons of low-cost, new capacity should still start production this year. Outside China, the cuts to capacity are having an effect and the market is now in deficit. But inside China there is a growing surplus. While some smelting Chinese capacity has been shut due to high costs, more new capacity is coming online.

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