Aluminum demand in China likely to rise 15% in 2010 - Enam

China Mining reported that Enam, a leading brokerage and research house has come out with its latest report on China’s aluminium sector and its outlook.

The firm said that aluminium demand in China is expected to grow by 15% in 2010 on the back of revival in construction and auto segments.

Long term prospect of aluminium is bright as China is still in the middle of completing urbanization and its metal intensive growth is likely to continue for many years to come. It added that about 65% of aluminium consumption is in the east and middle south China. The urbanization of North West and south west has great potential for aluminium demand.

In the short term, overcapacity, plenty of inventories and reopening of smelters due to return to profitability will cap any upswing in aluminium prices. However, the current average cost of the Chinese smelters is USD 2,000 and is rising further due to increase in bauxite and alumina and coal and power prices. These cost push factors provide a strong floor for aluminium prices.

Enam expects LME aluminium to trade between USD 2,000 to USD 2,400 in FY11 and it maintains FY11 estimate of USD 2,200. It is revising its FY11 alumina price estimate to USD 385 per tonne due to supply shortages and rising price of bauxite.

Indian aluminium producers are best placed with captive bauxite, alumina, power and are insulated from across the board cost increases to a large extent. In the pure aluminium space, our top pick would be Nalco. It is one of the cheapest aluminium producers and has volume upside of 30% in both aluminium and alumina due to brown field expansion.

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