Aluminum beating copper as supply-demand flips

Aluminum’s shift into a supply shortage means prices will climb to the highest versus copper since 2009, according to Natixis SA.

The CHART OF THE DAY shows a metric ton of aluminum bought 0.29 tons of copper on July 22, the most since October 2011. The ratio will rise to 0.325 next year, the highest since December 2009, Natixis estimates. Prices of copper beat aluminum in four of the previous five years.

Aluminum, used in everything from aircraft to beer cans, entered a bull market last week as it reached an almost 17-month high. Goldman Sachs Group Inc. expects the first deficit in at least five years in 2014. In contrast, it sees a glut for copper, this year’s worst performer among six main metals traded on the London Metal Exchange, widening through next year, after consumption mostly matched supply in 2013.

“Fundamentals for aluminum have clearly improved, with the market shifting from surplus to deficit, whereas copper fundamentals are gradually moving in the opposite direction,” said Nic Brown, head of commodities research at Natixis in London. “I’d wait for dips to buy aluminum. Alternatively, a copper short might make sense,” he said, referring to bets on lower prices.

Aluminum usage will climb faster than output this year, resulting in a 579,000-ton deficit, Goldman Sachs says. A 353,000-ton surplus will emerge for copper, used in pipes and wires, as increases in refined production outpace higher demand.

Copper, which has fallen 3.7 percent to $7,089 a ton on the LME this year, will trail aluminum, nickel and zinc in the next 12 months, the bank reiterated in a July 28 report. Aluminum has gained 11 percent to $1,992.50 a ton this year.