During ISRI’s Commodity session on aluminum, three speakers touched on the outlook for this nonferrous grade over the next several quarters. The speakers – Catherine Virga, an analyst with CPM Group; Nick Martin, Novelis; and Bruce Washaeur, Wabash Alloys – all agree that markets for the metal should be in decent shape for the foreseeable future, although they shouldn’t see the tremendous spikes that are being witnessed by copper and nickel.
However, like many other commodities, the key driver for the grade, said Virga, is China. "It is the largest producer and consumer," she noted. Adding to the market, Virga added that she expects China to see a 25 percent increase in aluminum production this year.
The surge in production, she added, could result in production outpacing demand by around 140,000 tons. Even though demand is growing by around 7 percent, the supply will outpace this, which could put a cap on prices.
During the roundtable discussion, Virga also said that she expects aluminum prices to soften. However, far from a bleak analysis, she notes that prices still should be far higher than historical highs.
Another factor that is starting to play a larger role in the aluminum market is the growing interest by various fund entities. These investment houses already have become a far greater player in the copper market, and, while the expectations are that they will not play as dominant a role in the aluminum market, they will undoubtedly change the dynamic of this commodity.
Martin, from Novelis, adds that in the aluminum market has evolved.
More challenging from the manufacturing sector, Martin adds, are the concerns about energy. Volatile energy prices, especially electricity, have played havoc on aluminum markets over the past several years, ultimately resulting in some aluminum pot lines shutting down.
However, there are signs of some of these idled facilities reopening, according to the panelists. Virga notes an Ormet line in Ohio and an Alcoa line in Washington state could be reopen.
What has been driving some of the interest in aluminum has been the growth of the metal in auto production. A slide shown during the presentation highlighted the steady increase in the use of the metal as a percentage of the vehicle.
Finally, there was expectations that industry consolidation will become a bigger issue. However, while chronic excess capacity in the industry has kept aluminum from taking off, even more consolidation, one speaker noted, is not the silver bullet that is needed to boost the industry.
The modestly improving scrap aluminum market is happening while domestic scrap demand is soft and North American manufacturing business is soft. What is keeping some upward strength in the commodity is that the generation of scrap aluminum is low during the first quarter, which resulted in a tight scrap market, with margins compressed.