Times have been good for the aluminum industry recently, as noted by a presentation title at the Aluminum Spotlight session at the ISRI Annual Convention: “Aluminum at the Top.”
But both the author of that presentation, Blair Stewart of JW Aluminum, Charleston, S.C., and a commodities analyst who also spoke can see some clouds on the horizon.
James King of James F. King Consulting, Corbridge, U.K., gave attendees of the session a forecast that sees LME 3-month pricing for aluminum average 81..6 cents per pound this year, up slightly over 2004’s 78.1 cents average.
But he predicts global supply will catch up with demand later this year, driving the average price down to 72.7 cents in 2006 and 64.3 cents in 2007.
King says that global demand will remain strong (especially from China), but that the production of aluminum will also increase (again, especially in China).
He sees the market “still tightening” in the first half of this year, followed by slower consumption growth and primary production increases that could start leading to surpluses as soon as late this year.
JW Aluminum’s Stewart noted that aluminum prices have been dropping at the same time that LME inventories have also been falling. Stewart said, though, that he sees supply and demand to just about be in balance right now.
Noting that demand, pricing and margins have been good in 2004 and 2005, Stewart proceeded to list “reality check” factors that could signal a downfall for the market.
Stewart’s “fear factors” included: Russian rolling mills are coming online, as is increased Chinese production, which could bring considerable imported aluminum into the United States; the notion that commodities are in a speculation bubble, with people falling into the same “this time it’s different” trap that created the Internet bubble; that General Motors is cutting production by 10 percent at the same time that housing values and new housing starts could start to decline.
In his presentation, King also alluded to a few of those scenarios, noting that increased production surpassing demand is a likely occurrence.
Also at the session, Dr. Subodh Das of Secat Inc., Lexington, Ky., urged scrap recyclers to put time and energy into increasing the aluminum used beverage container recycling rate, since the aluminum, metals and scrap recycling industries all benefit from the recycling and production of the containers.
The ISRI (Institute of Scrap Recycling Industries Inc.) Annual Convention was held in mid-April in New Orleans.