Rise in aluminum prices to prove unsustainable: analyst says

The recent rise in aluminum prices would prove unsustainable due to limited room for speculation and oversupply pressures, said Yang Xiaowu, General Manager at the Futures Department of China Aluminum International Trading in a statement made on May 29.

LME aluminum prices rose from $1,754 per tonne on May 21 to $ 1,848 per tonne on May 28. Some market players attributed the sharp gain to market speculation that the Indonesian ban on exports would continue, with speculators now believing prices would rise by 30% in 2015 to as high as $2,300 per tonne.

Mr. Yang, however, held a different view, believing the rise in aluminum prices would be unsustainable.

Thanks to plentiful resources around the globe, Chinese aluminum smelters can increase bauxite imports from Australia, Guinea, and other countries to make up for the shortfall from Indonesia’s ban on bauxite exports, Yang said.

If the ban did depress bauxite imports from Indonesia, Chinese smelters, which integrate bauxite, alumina and aluminum fabrication, mainly in Shandong, should purchase alumina directly from overseas suppliers, especially from Australia which has abundant alumina supply. Alumina inventories in China are also considered sufficient for the time being, he added.

In addition, Chinese companies had already planned to build alumina plants in Indonesia long before the country’s export ban came into force. Since it takes less time to build alumina plants than to build aluminum smelters, Chinese companies will be able to ship alumina from Indonesia to China in the future, Mr. Yang said.

Mr. Yang noted that rising aluminum prices may prompt smelters to expand capacity or bring idled capacity back online, which would also increase supply and weigh on aluminum prices.

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