During the recently concluded ISRI Commodity Roundtable a bevy of experts hold different outlooks for aluminum, both short and long term.
The annual Commodity Roundtable, put together by ISRI (The Institute of Scrap Recycling Industries Inc.), brought together several hundred people to mix, mingle, and hear prognostications and trends that are taking place in the metals market.
During a session on aluminum, representatives from TST Inc., Hydro Aluminum, Davenport & Co. and Alpert & Alpert Iron & Metal, looked at the market for the commodity going forward.
Lloyd O’Carroll, with Davenport & Co. LLC, an investment and research firm, noted that China continues to be the driving force for the aluminum market. In his opening remarks, O’Carroll said that consumption in both China and Europe is strong. And, he added, even with the increased aluminum capacity, he noted that production is only rising minimally.
Andrew Stein with TST, agreed that China is the area that warrants constant attention. While coastal regions of the country may be the first to feel the impact of China’s purchasing, "Everyone is a transportation cost away from China. As that country increases its consumption it will be something to watch," Stein noted.
While markets have held up fairly well, the speakers did acknowledge that there are concerns on the horizon. O’Carroll noted high energy prices, higher borrowing costs and a slowdown in the housing market as areas of concern. While recognizing these as potential negatives for aluminum, he doesn’t expect to see a recession, "although people will feel it."
In addressing the issue of hedge funds in the market, O’Carroll said that while they are playing a greater role in the market, "These guys are technically driven. They are pure momentum buyers. They don’t change the price, but exacerbate volatility," he notes.
As to what are some of the issues that handlers of scrap aluminum are dealing with, Alan Alpert with Alpert & Alpert, said that a value added tax on exports and how that is resolved with have a great impact on the demand for scrap.
For Stein, a big issue is the changes in spreads for aluminum.
Finally, with consolidation taking a hold of many other segments of the metals and mineral industry, all the speakers feel that increased consolidation will take place in the aluminum industry, with many of the top players strengthening their businesses with downstream acquisitions.