Japanese aluminum buyers say LME prices supported by stable demand

Japanese trading houses and manufacturers importing aluminum said stable global demand was supporting London Metal Exchange three-months aluminum prices, which rose to this year's high of $1,967/mt.

"Our forecast was on target," said a trader at trading house Marubeni.

Marubeni forecast in December that the LME aluminum price would hit $2,300/mt at the end of 2014, underpinned by global macroeconomic recovery. It expected July-September LME prices at $1,900-2,200/mt and October-December at $1,950-2,300/mt.

"In the macroscopic picture, supply tightness is continuing, while demand, notably in the Western economies, has improved," the trader said.

However, an official at a second Japanese trading house had a more moderate outlook.

"It is consolidating above $1,900/mt, so it is gradually shifting to the level above $1,950/mt," he said. "But it will take more than an easy push to hit $2,000/mt--will take some time."

The official forecast near-term LME prices in a range of $1,900-1,930/mt.

He said market fundamentals were strong, pointing to tight supply evidenced by a decline in LME warehouse stocks to 4.9 million mt on July 14, from 5.4 million mt at the end of last year.

A third Japanese trader does not expect prices to rise further, because he said the high seen Tuesday was not just due to supply tightness but also to the financial community shifting money from bonds and securities to commodities.

"I am not expecting a major surge from the current level," he said. "The investors are only looking at commodities for short-term profits."

A global producer source said China's supply could change the current positive momentum.

"It is the question of whether China is keeping up with output cuts," he said. "China has been exporting semi-finished aluminum products to Indonesia and other Southeast Asia countries, and this is impacting the regional aluminum demand."

Meanwhile, the third Japanese trader said many aluminum smelters would be able to make a profit if LME three-months prices were above $1,900/mt, with premiums holding above $400/mt. He estimated average production costs at $2,250/mt.

"I am eyeing purchases at less than $400/mt premiums," he said.

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