Aluminium moving from surplus to deficit

Aluminium prices have zoomed up this year. With a return of 19 per cent, year-to-date, aluminium finds its place in the top three best performers in the base metals complex .

Indonesia’s ban of exports of unprocessed aluminium ores in January stoked prices. The country is the world’s largest supplier of bauxite — the raw material used for aluminium production.

The aluminium futures contract traded on the Multi Commodity Exchange (MCX), which moves in tandem with the global price, has risen about 17.5 per cent so far this year. It is currently trading near INR128.35 per kg.

Demand for aluminium could be the strongest among the other bases metal complex driven by the auto sector next year, says a Citi Research report.

Demand-supply imbalance

The market for aluminium has been in surplus for nine long years since 2005. But the scenario is expected to change now. A series of production cuts and smelter closures since 2013 is expected to push the aluminium market into a deficit this year.

The global aluminium production in 2014 is expected to rise only by 0.8 per cent to 48.06 million tonnes, according to the Australian Bureau of Resources and Energy Economics (BREE).

The slowdown in production is due to closure of major refineries. Low prices and high energy cost has forced global majors such as Rusal Alcoa, Rio Tinto and many others to cut production and close some of their smelters.

However, BREE projects the production in 2015 to increase at a higher rate of about 3.76 per cent to 49.87 million tonnes due to increased production in China, India and West Asia.

Global aluminium consumption, on the other hand, is expected to increase by 5.27 per cent in 2014, to 48.67 million tonnes from 46.24 million tonnes in the previous year. The surge in aluminium consumption is mainly due to the increasing demand from emerging economies such as China and India. China accounts for about 47 per cent of global aluminium consumption.

For 2015, the consumption is projected to increase by 3.55 per cent to 58.40 million tonnes, according to BREE.

Slowdown in production, coupled with a relatively higher rate of consumption, is expected to push the aluminium market into a deficit for the first time since 2005 in the current year. Year 2014 is expected to end with a deficit of 0.61 million tonnes while the deficit is projected to be at 0.53 million tonnes according to data from BREE.