Aluminum faces first deficit in nine years on output cuts: Sumitomo

Tokyo: Japanese trading house Sumitomo Corp., which has stakes in smelters from Brazil to Australia, forecast aluminium will swing into a deficit next year for the first time since 2006 as lower prices accelerate output cuts.

“Global demand will outpace supply by 37,000 metric tonnes in 2015 from a surplus of 312,000 tonnes estimated for this year,” said Shingi Yamagiwa, manager of light metals trading at the Tokyo-based company.

Aluminium prices are down 18% over the past year on the London Metal Exchange (LME). Top producers including United Co. Rusal, Rio Tinto Group and Alcoa Inc. have announced output cutbacks. China has tried to curb the capacity of its plants that account for almost half of world output, weighing down prices in a market that’s over-supplied.

“Western producers will continue to cut output, while China will adjust its production soon as the price of electricity pressures high-cost smelters,” Yamagiwa said in an interview on 7 February.

The metal touched $1,671.25 a tonne on 3 February, the lowest price since July 2009. The contract for delivery in three months was little changed at $1,718.50 a tonne at 11.23am in Tokyo.

Global aluminium demand may exceed output by 390,000 tonnes this year, Macquarie Group Ltd said 9 January, as demand improves and output is curbed amid unplanned closures and bankruptcies. Deutsche Bank AG forecast a 5.6% increase in global use of the metal this year in a 14 January report, with China’s demand growth at 9.5%.

BHP Billiton Ltd, the world’s biggest miner, said 17 January that it may cut as many as 450 jobs amid plans to close its Bayside aluminum smelter in South Africa.

Record premium

Premiums buyers pay for aluminium in the US Midwest were at 20 cents to 20.5 cents a pound ($420-$431 a tonne) from a record 20 cents to 21 cents a pound in January, Harbor Intelligence said on 4 February. The surcharge is added to the price for immediate-delivery metal on the LME.

Supply cutbacks, limited scrap supply and an increase in orders also helped boost the premiums, according to Wood Mackenzie Ltd.

“Premiums to Japan are expected to jump to a record $375 a tonne in the third quarter from around $255.5 this quarter on soaring fees in the US,” Yamagiwa said. The fee is settled on a quarterly basis in Japan.

“Record LME inventories, of which the majority is locked in financing deals, also supported the premiums,” Yamagiwa said. Aluminum stockpiles tracked by the LME reached an all-time high 5.49 million tonnes on 16 January.

As much as 80% of stockpiles may be tied in transactions that make the metal unavailable to buyers, according to Societe Generale SA. Consumers including brewer MillerCoors Llc said last year that lengthy waits for metal inflated costs by $3 billion. BLOOMBERG