Cost of aluminum is going up
Metal could be in short supply if smelters shut down
Wednesday, April 11, 2001
BLOOMBERG NEWS
LONDON -- The price of aluminum posted its biggest gain in three months yesterday after the Bonneville Power Administration asked Northwest smelter operators to extend current shutdowns for two more years.
The companies, which account for 38 percent of the nation's capacity, were asked not to restart plants in the region until October 2003.
"People had expected that a lot of smelter capacity would start to creep back in early next year," said Kevin Norrish, a minerals economist at Barclays Capital. "That's now looking very unlikely."
Aluminum for delivery in three months rose as much as $40, or 2.7 percent, to $1,528 a metric ton on the London Metal Exchange. It was the biggest rise since Jan. 8, when the price jumped 3.1 percent.
Aluminum companies have cut 1 million metric tons of annual production in the Northwest over the past year because of rising electricity rates spurred by cool weather, the California energy crisis and low water levels in hydroelectric dams.
The reductions have been offset by falling demand because of the U.S. economic slowdown, said Robin Bhar, a metals analyst at Standard Bank in London. Because of the BPA announcement, supplies will now decline by about 200,000 tons this year, he said.
The outlook for prices will depend on whether the U.S. economy enters a recession, said Martin Squires, an analyst at Carr Futures in London. If the United States avoids recession, "we probably are looking for a deficit this year and next," in which production fails to keep up with demand, he said.
Producers outside the United States aren't likely to take up the slack created by the Northwest cuts because capacity elsewhere in the world is limited, analysts said.
Aluminum prices are likely to surge next year as the U.S. economy recovers and production fails to meet demand, said Norrish of Barclays Capital. He predicted aluminum for immediate delivery would average $1,820 a ton next year, compared with $1,568 so far this year.