The outlook for world aluminum prices in the first six-months of 1998 will be flat with demand remaining weak. However, the current negative sentiment surrounding Asia appears to be overdone and there will be some degree of export-led recovery, according to Metal Bulletin Research senior metals consultant, Raju Daswani.Addressing the third INCAL conference in New Delhi recently, he said, "We believe that demand in Asia will recover in the second half of the year to some degree. Combined with the healthy demand in Europe and North America, we expect the prices to rise again." he said.
He forecasts a deficit of around 80,000 tonnes of metal in 1998 implying fairly balanced market conditions. "We are forecasting average prices for 1998 and 1999 at $1600/tonne and $1724/tonne respectively," he said. The weaker Asian market, Daswani said, would preclude any bull market in the metal, But an economic downturn in North America and Europe, currently forecast for around 2000-2001, will push the market back into alarger surplus resulting in a downward effect on prices, he adds. Tracing the history of aluminium prices, Daswani said the industry has always been characterised by its highly cyclical nature and external shocks. The oil shocks had reduced consumption between 1974 to 1982, when the rate of growth declined.
Aftr the oil shock, collapse of the Soviet Union unleashed flow of metal into the Western markets. Exports from CIS countries increased from 323,000 tonnes in 1990 to 2.2 million tonnes in 1997. The cut back in production in the West through an agreement and increased demand over a period absorbed this extra supply from CIS in the global market. At the beginning of 1997, the "stage appeared set for a couple of boom years for the aluminum market and an accompanying price rise," Daswani said.
But then came the Asian financial crisis, which raised a serious question: whether there would be a downward trend in the prices of the metal? Reviewing the present world demand, he said that during 1997 as per MBRWestern World, consumption increased by about 4.7 per cent to 18.72 million tonnes. Of this total, countries in the East Asia, Hong Kong, Indonesia, Malaysia, Philipines, Singapore, South Korea, Taiwan, Thailand accounted for just under 10 per cent of total Western World figures.
The annual growth in demand from 1980 to 1996 was 12.9 per cent. South Korea and Taiwan accounted for 35 per cent and 22 per cent of East Asian demand respectively. Japan in 1997 consumed 2.5 m tonnes or 13.5 per cent of the total demand. The Japanese growth in demand between 1991 to 1996 was just 0.3 per cent per year. But world demand saw an average increase of 3.5 per cent annually.
Overall MBR feels a slightly negative growth for the whole of Asia in 1998 with a contrction in demand for Japan and the combined nations of East Asia of about two per cent. With all other areas of the world expected to exhibit a positive growth, the overall Western World demand will continue to expand over the period 1997-2002.
Overall Europeandemand for the metal rose by over 10 per cent in 1997. Demand is also strong in the US. With a slow down in demand in the prospect, would the producers cut down production, asks Daswani. "History tells us that this is not likely to be the case. We can take little confidence that producers intend to take any action in terms of restraining supply," he says.
In 1998, Daswani estimates the supply to increase by just over 3.6 per cent as some restarts of idle capacity are announced and expansions and new capacity additions introduced in 1997, will be fully operational. He feels that the Western world smelter utilisation rates between 1997 and 2000 will increase from 93 per cent to 98 per cent.
Russian production, according to him, has seen an increase every year since 1991, save 1994, and MBR estimates that Russian output for 1997 as a whole totalled just over 2.9 million tonnes. It has seen an increase of 1.3 per cent year-on-year compared to last year.
Chinese production of aluminum has also risen 86 percent between 1992 and 1997 from under 1.1 million tonnes to an estimated 2.04 million tonnes in 1997. in 1998 production is estimated to increase to 2.050 million tonnes a rise of just five per cent compared to the 1997 output. Unconfirmed reports, however, state that Chinese have stocks of 500,000 tonnes, which if true could prove to be a disturbing factor in the world market.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
