China May Face Aluminum Deficit In 2 Yrs; Expansion Slows-CRU

China, the world's biggest producer of aluminum, may face a supply deficit of the metal around the end of 2010 as falling prices will delay further expansions, said Paul Robinson, group manager of nonferrous metals at metals consultancy CRU.

"Stocks will build up further (in China) next year, and the surplus likely to result in greater downside in the Shanghai Futures Exchange aluminum prices than LME prices," Robinson said Tuesday on the sidelines of the 13th World Aluminum Conference, organized by the London-based firm.

Rising global stockpiles and rapidly declining prices will delay new projects as many high-cost domestic smelters struggle to keep the already very limited profit margins.

Three-month London Metal Exchange aluminum has fallen by about 25% after hitting an all-time high earlier this year on oversupply worries amid the recent global financial market turmoil. The rally in prices had prompted many aluminum companies to initiate expansion, worsening the demand-supply situation in the country.

Still, investment-led demand in emerging markets, including China, India, Russia and Brazil, and supply side risks mainly due to high energy costs will support aluminum prices, which are still relatively cheaper compared to peers traded on the LME such as copper, Robinson said.

The demand from the property sector and consumer products may remain weak, but infrastructure construction will lend support to the overall demand growth, and low prices will offer special attraction, he said.

On the supply side, "high power costs are slowing down industry decision on further production capacity expansions," he said. With existing power contracts expiring in the next few years, smelters in western Europe and North America are especially vulnerable, if aluminum prices remain at the current low level.

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