Aluminium

Rebecca McCallum

World aluminium prices averaged US$1360 a tonne in the March quarter 2009, the lowest since September 2002. Aluminium prices more than halved between September 2008 and February 2009 as the global economic downturn reduced consumption of consumer durables and motor vehicles, which are both significant drivers of aluminium demand. Despite cuts to production worldwide, rapidly declining consumption is expected to result in production exceeding consumption by around 1.2 million tonnes in 2009. World stocks of aluminium are forecast to be 8.6 weeks of world consumption at the end of 2009, as production exceeds consumption for the third consecutive year.

Prices to recover slowly

Weak consumption and expectations of substantial stock increases resulted in prices averaging around US$1400 a tonne in the first half of 2009. World aluminium prices are expected to increase gradually during the second half of 2009, averaging around US$1590 a tonne, as signs of economic recovery become more pronounced and consumers anticipate rapid future increases in demand. However, there are considerable downside risks to this forecast. The expected improvement in prices will be dependent on the extent to which expectations of improving demand are met during the period. Despite this forecast price improvement in the second half of the year, for 2009 as a whole, prices are forecast to average around US$1500 a tonne, a fall of almost 40 per cent from 2008.

In 2010, aluminium consumption is anticipated to grow faster than production, as world economic growth increases. Stocks are expected to decline during the course of the year, to around 7.8 weeks of consumption by year end. In line with falling stocks, prices are forecast to increase by 16 per cent to US$1750 a tonne. Nevertheless, high levels of stocks will remain during 2010, potentially limiting any significant upward movement in prices.

World consumption declining again in 2009

World aluminium consumption is forecast to decline by around 12 per cent in 2009, to 32.5 million tonnes. Substantial cuts to production of consumer durables and automobiles globally are anticipated to result in aluminium consumption declining rapidly in most countries, including China, Japan, Germany, Italy and the Republic of Korea.

Lower industrial activity globally is also reducing demand for aluminium in applications such as ship building, cladding and commercial construction. This situation is expected to continue until late 2009 when economic conditions are assumed to begin improving.

In the first quarter of 2009, China’s consumption contracted by 10 per cent, compared with the same period in 2008. Despite the government’s economic stimulus package, aluminium consumption in China is anticipated to be affected by reduced demand for exports, particularly for consumer durables. As economic conditions improve during the second half of 2009, consumption is expected to increase and annual consumption is forecast to total 11.5 million tonnes for 2009 as a whole. However, this still represents a 7 per cent decline from 2008.

In 2010, world aluminium consumption is forecast to increase by 8 per cent, to 35 million tonnes. The largest increases in demand are anticipated to be in the European Union and China. In the European Union, demand for lightweight, fuel efficient vehicles is expected to support consumption, while in China, infrastructure construction is anticipated to account for the majority of the increase in demand. Consumption in China is forecast to increase by around 9 per cent, to 12.5 million tonnes.

Production cuts still flowing through

World aluminium production is forecast to decline by 14 per cent to 33.8 million tonnes in 2009. The expected 5.7 million tonne fall in aluminium production in 2009 is equivalent to the total additions to capacity between 2006 and 2008.

In response to falling prices, a number of producers have closed smelters or reduced production. This includes some of the world’s largest aluminium producers such as Chalco, Alcoa, Rio Tinto Alcan and UC Rusal. For example, Chalco has reduced annual production by more than 750 000 tonnes, while Rio Tinto Alcan has made cuts equivalent to more than 500 000 tonnes a year.

However, production in a number of countries, particularly in the Middle East, is expected to increase. In countries such as Oman and Qatar, relatively cheap energy prices make aluminium production costs lower relative to production in the United States and Western Europe.

In 2010, world aluminium production is forecast to increase by around 3 per cent, to 34.9 million tonnes. A number of smelters which have previously reduced output or shut down are expected to restart or increase production during the year, because of increasing consumption and the subsequent increase in world prices.

Australian production lower in 2009-10

In 2008-09, Australian aluminium production is estimated to have remained steady, at around 1.96 million tonnes.

Australia’s aluminium production is forecast to decline by around 3 per cent, to 1.9 million tonnes in 2009-10, as a result of reduced production at Alcoa’s Portland smelter in Victoria. Alcoa announced cuts to production in November 2008 and again in April 2009, in response to the weak outlook for aluminium.

In line with lower production, Australian exports of aluminium are forecast to decline by 5 per cent in 2009-10, to 1.63 million tonnes. Lower export volumes and lower export prices are forecast to result in the value of exports declining to around $3.8 billion, from an estimated $4.9 billion in 2008-09.

Alumina

Most sales of alumina worldwide take place as part of contractual agreements, where the contract price is linked to the aluminium price, or are accounted for as internal transactions within vertically integrated companies. Any remaining alumina is sold on the spot market. As a result, world alumina prices generally reflect the availability of alumina spot sales and not necessarily movements in aluminium prices.

In 2009, world alumina prices are forecast to average around US$225 a tonne, 40 per cent lower than in 2008. Lower production of aluminium in 2009 is expected to reduce demand for alumina, placing downward pressure on alumina prices. As aluminium production is forecast to recover gradually in late 2009 and into 2010, alumina demand and spot prices are forecast to increase, resulting in alumina spot prices averaging around US$310 a tonne in 2010 .

Australian export values declining

Australian alumina production is estimated to be around 19.5 million tonnes in 2008-09, slightly higher than in 2007-08. In 2009-10, production is forecast to increase by around 1 per cent, to 19.7 million tonnes. Increased production is expected to be underpinned by the completion of the ramp up phase at Rio Tinto Alcan’s Gove refinery. Projects to expand alumina production capacity currently underway are not scheduled to be completed before 2010.

Australian exports of alumina are forecast to be around 16.1 million tonnes in 2009-10, around 0.5 per cent lower than the estimate for 2008-09. In year average terms, alumina export prices for 2009-10 are forecast to be lower than in 2008-09. Although export prices are forecast to increase in the first half of 2010, this increase is only expected to be modest, which is forecast to lead to the price for 2009-10 averaging 10 per cent lower than the estimate for 2008-09. As a result, alumina export values in 2009-10 are forecast to be $5.6 billion.

Aluminium and alumina outlook
			2008	2009	f	2010	f	% change
World aluminium
Production		kt	39 430	33 750		34 904		3.4
Consumption		kt	36 912	32 521		35 018		7.7
Closing stocks		kt	4 139	5 368		5 254		– 2.1
– weeks consumption			5.8	8.6		7.8		– 9.3
Price		US$/t	2 487	1 510		1 745		15.6
		USc/lb	112.8	68.5		79.2		15.6
World alumina
Spot price		US$/t	381	225		310		37.8
			2007-08	2008-09	s	2009-10	f
Australia
Production
Bauxite		Mt	63.5	64.9		64.3		– 0.9
Alumina		kt	19 359	19 527		19 725		1.0
Aluminium		kt	1 964	1 956		1 899		– 2.9
Exports
Alumina		kt	15 739	16 230		16 145		– 0.5
– value		A$m	5 809	6 379		5 648		– 11.5
Aluminium		kt	1 650	1 719		1 626		– 5.4
– value		A$m	4 967	4 914		3 754		– 23.6