Aluminium Prices Are Expected to Soar by More Than 30%

The supply of aluminium, according to Timesonline - which is used to build cars and aircraft - is struggling to keep pace with demand because producers cannot get access to the vast quantities of electricity needed to create the lightweight metal.

The continued global power crunch could increase the cost of everything, and as a result, aluminium prices, already at historic highs, are expected to rise by about 33 per cent in the next couple of years.

Aluminium production in China alone has more than doubled and risen from 4.3 million tonnes in 1999 to about 12.6 million tonnes last year. Electric power represents about 20% to 40% of the cost of producing aluminium, depending on the location of the smelter.

Higher energy costs could lead to smelter closures in China, which has some of the least efficient and most expensive producers in the world. Its smelters use electricity from coal-fired power stations and the price of their energy has risen dramatically. In February the Government diverted electricity to the cities to avoid blackouts and an estimated 600,000 tonnes of production was lost.

Similar power crunches have hit production in South Africa, Brazil and New Zealand, and aluminium producers are increasingly looking to areas with large energy supplies.

Analysts forecast that the aluminium price will hit $4,000 a tonne in the next couple of years. The metal was trading at $2,900 a tonne on the London Metal Exchange last week, up 50 per cent in two years. Power costs have risen by about 50 per cent for the industry in the past five years and are expected to rise further as oil and gas prices continue to rise.

“Access to secure and cheap power is now more important than ever for aluminium producers,” said Tom Albanese, the chief executive of Rio Tinto.

Comments

[skwestorange]

Does that mean producers in USA and other western nations where electricity is plentiful (current economic slump can only help) will do better than China?

[blink0404]

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www.greenfaucet.com/sh...

[silveraxis]

I see no "alpha" opportunity here. If Aluminum is going 30% higher because the cost energy will rise (which makes up 20-40% of the cost to produce aluminum) then it would be much better to simply invest in energy. Of course, the big assumption here is that energy will continue to rise--probably true in the long term but there will be extended exceptions to the rule that willl seem a lot like bear markets.