Aluminum market to see renewed pressure from additional supply: Macquarie

Aluminum prices are likely to come under renewed pressure after capacity additions and restarts of idled capacity come on line in the second half, investment bank Macquarie said.

Global primary aluminum output, excluding China, reached its lowest level of 76,700 mt/day last October, according to International Aluminium Institute data, but has since started to rise toward 79,000 mt/day, it said.

Macquarie noted production curtailments were largely offset by strong ramp-ups from Middle East smelters, driven by completions of Ma'aden's 740,000 mt/year smelter and EMAL's 500,000 mt/year expansion of the Taweelah smelter.

Latest production figures from Aluminum Bahrain also reveals that first half production was up 2.5% on the year at 464,012 mt.

In China, although around 2 million mt/year of production has been curtailed since the start of 2013, and the commissioning of new capacity has lagged behind schedule, increased production is also likely in the second half.

Macquarie noted that local government power subsidies have seen around 650,000 mt/year of Chinese aluminum capacities come back on line with more idled capacity also expected to be rebooted.

"This, combined with new capacity of around 2-2.5 million mt/year to be brought into production in the second half of this year, would result in inventory levels rising and a reversal of the daily production trend," it said.

Higher all-in aluminum prices have also seen ex-China producer margins improve, with higher premium levels due to existing warehouse queues at Detroit and Vlissingen.

"This would raise the prospect of persistent high premiums in ex-China into next year, therefore improving margins at producers. Furthermore, the lowering of the cost curve through the past months also makes producers feel comfortable," Macquarie said.

Three-month aluminum on LME select was trading at $1,945/mt at 1200 GMT.

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