Aluminium glitters at LME despite high inventory

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Bhubaneswar, Jul 16: Aluminium prices on the London Metal Exchange (LME) have moved up in the last few weeks despite huge stocks with some companies. The cash settlement price of the metal surged to an all-time high of $3291.50 per tonne on July 11, 2008. The last high was $3,275 in May 2006.

The price rose from $3,066 on July 1 to $3271.50 on July 10, and has been staying over the $3,000-mark for the past two to three months. In May 2006, the prices remained over the $3,000 mark for just a week or so.

Interestingly, the metal is ruling high despite the fact that manufacturers are sitting on huge stocks, with some companies having stocks over 10 days.

“The metal prices seem to have taken into consideration the future position of stock into account,” said PK Parida, executive director for marketing at the government-owned National Aluminium Co (Nalco).

Moreover, he added, the cost-push affect has not been able to neutralise the high inventory effect.

On the inputs front, the cost of caustic soda has increased by 15%. Nalco, which was buying caustic soda at Rs 15,000 a tonne, is now paying Rs 20,000 per tonne.

The thermal coal price has gone up by about 150%, and Nalco is paying $150 per tonne as against $50 earlier. In China, fuel prices have increased by about 18%.

Parida said freight costs have also gone up. The international inflation has also its bearing on the metal prices. Related to copper prices, the prices of aluminium were not increased in the recent past.

The cut back of production by China and South Africa has also its effect on the prices. Metal producers in China, the largest producer of aluminium with 14 million tonne per annum capacity, have been badly hit by snowstorms and thermal power outages.

Production is expected to be down by about 6 lakh tonne this year as compared to 12 million tonne in 2007. Nalco, India’s second-largest producer of aluminium, will soon become the largest when it completes the second phase of an expansion that will augment its capacity from 4.6 lakh tonne now to 6.3 lakh tonne. The expansion will cost of Rs 5000 crore.