The question is what will happen in the current year. The International Monetary Fund (IMF) struck a positive tone in a year-end note, which said that it expects prices of many commodities to rise in 2010, with demand driving momentum even as spare capacities and adequate inventories act as moderating factors.

Graphics: Yogesh Kumar / Mint

Aluminium spot prices on the London Metal Exchange (LME) have risen by about 5%, in a month, to $2,233 (around Rs1 lakh) a tonne. Aluminium Corp. of China Ltd recently raised spot alumina prices by 5.7%, the first time since September. The price rise in aluminium has been accompanied, strangely enough, by rising LME stocks too in this period, which has led to some fears that the price rise may not last.

LME inventories as of 4 January were 4.62 million tonnes, nearly twice its level from a year ago, but 9% higher than in June 2009. Some of these inventories are locked up in financing deals, nearly 70% according to a Reuters report, which are not expected to be unwound till May. Depending on the market situation at that time, prices may react.

But the key factor will be demand and supply. On the demand front, emerging markets will play a key role even in 2010, as industrial expansion in countries such as India and China drive growth. According to the IMF, emerging markets contributed to nearly 60% of global aluminium consumption in 2008.

In 2009, China has been stocking up on aluminium which was partly responsible for holding up prices. What it does in 2010 will play a key role in determining aluminium prices in the near term. The latest HSBC China Manufacturing PMI showed a sharp rise in production growth in December; and the average rate of expansion in Q4 was the fastest since the second quarter of 2004.

On the demand front, a key parameter to watch will be the situation in the developed markets. The US and Europe are large consumers but their economies struggled to recover in 2009. Initial data coming from the US show some positive signals and the global PMI numbers, too, showed the UK and the US doing better than in the past. If this translates to better demand for commodities such as aluminium, then the rise in prices will sustain.

There is a threat that capacities that have been idled may be restarted, which will increase supply. A clearer trend will emerge some time in the middle of 2010.

For the moment, Indian aluminium producers will benefit from higher aluminium prices.