HARBOR expects increasing aluminum sourcing challenges in 2013

HARBOR expects the global primary aluminum market to experience in 2013 its seventh consecutive surplus (609,000 tons vs 485,000 tons in 2012 ). China should be effectively a balanced market with a surplus of only 124 ktons, while we expect the Rest of the World (RoW) to experience a surplus of 485 ktons. Nevertheless, this surplus could easily turn into the first deficit since 2007 if any disruption in aluminum production occurs (like in 2011 and 2012) or if China and/or India under deliver in terms of aluminum output capacity expansion (which is a possibility).

We expect global aluminum demand to regain some dynamism by growing 8.4% in 2013 vs 3.7% in 2012.

Demand should do better this year as China gathers better momentum and Emerging Asia, North America, Latam (now Brazil included), Middle East and East Europe continue to add to the equation. Meanwhile, weakness out from West Europe and Japan should be a permanent feature.

One of the key industry challenges this year will be aluminum sourcing. The fact is that there is less metal available for the consumer today than at the end of 2008 given a declining surplus that has been effectively turned into a deficit by some European/North American aluminum producers that have been selling the metal to warehouses instead of the consumer (reduces metal availability). On top of this, more than 70% of the record amount of aluminum stored in warehouses is locked up under financing deals and most of the other 30% faces load out queues as long as one year. In 2012, actual physical aluminum availability in the LME experienced its largest decline in almost ten years and should get worst in 2013.

As a result, consumers outside China are finding it more challenging to source metal and are thus paying record premiums in all regions of the world in order to secure it.

Consumers in the Americas, West Europe, South East Asia and even India are bringing metal from farther away locations. The main source of metal at the margin for all of these regions has been the Middle East (UAE, Bahrain, Oman and Qatar). This will hardly change. Expect fresh record spot premiums this year.