Is Aluminum’s Nine-year Surplus Finally Ending?

2013 wasn’t a great year for aluminum. During the first nine months of the year, production of the metal exceeded demand by 1.2 million metric tons (MT), The Wall Street Journal quotes the the World Bureau of Metal Statistics as saying. That’s more than double the surplus recorded during the previous year.

Unsurprisingly, prices for the metal were hit hard by that oversupply. Specifically, states the news outlet, as the year drew to a close, three-month aluminum on the London Metal Exchange (LME) was down at $1,748 per MT, its lowest point since July 2009.

That may sound bad, but a broader look at the aluminum market shows that it’s not just this past year that the metal has performed poorly — it’s been down in the dumps for nearly a decade. As Bloomberg notes, “[t]here have been nine years of excess global production … with Chinese output tripling in the period.”

All that doom and gloom makes this week’s news that in 2014 the metal may go into deficit that much more significant.

Alcoa’s positive prediction

Providing that positive news was Alcoa (NYSE:AA), one of the world’s top aluminum producers. It released its first-quarter results on Tuesday, at that time also commenting that it sees the aluminum market falling into a 730,000-MT deficit this year. That’s up significantly from the deficit of 106,000 MT the company predicted back in January, as per Bloomberg.

Driving that deficit, the company said, will be a 7-percent increase in worldwide aluminum demand, much of which is expected to come from the aerospace sector. However, auto sector demand, particularly from Ford (NYSE:F), which needs the metal for its lightweight F-150 pickup truck, will also play a role, said Klaus Kleinfeld, chairman and CEO at Alcoa. “The opportunity in auto is tremendous,” Bloomberg quotes him as saying.

Price update

Aluminum prices have certainly gained some support from Alcoa’s new outlook. Most recently, Bloomberg pegged LME aluminum for three-month delivery at $1,827 per MT, above the $1,700 to $1,800 range it traded in for 2014′s first quarter.

However, that prediction isn’t the only factor that’s been positively impacting the metal’s price — a week prior to the company’s announcement, aluminum broke its 200-day moving average for the first time since March 2013, with three-month aluminum approaching $1,850 per MT, as per MetalMiner. Explaining the gain, Forbes notes that it was related to the UK High Court’s decision to uphold Rusal’s (EPA:RUSAL) block on the implementation of new LME warehouse rules. If put in place, the rules would have “depressed the spot premiums manufacturers like Alcoa depend on.”

At the moment, it’s uncertain if prices for the metal will continue to rise. After all, as Forbes points out, structural factors such as “persistently high aluminum inventory relative to demand” are still an issue. However, Alcoa’s deficit prediction certainly seems to indicate that a shift may be in the works.

Another SPX Chart 1946 2014 Co-relation

German Vice Chancellor Warns 'No Alternative To Russian Gas'

'No Alternative to Russian Gas'

Even Germany's vice chancellor Sigmar Gabriel realizes that there is no alternative to Russian gas for Germany, at least not in the near future. It should be noted to this that Germany's energy policy has driven energy prices to the very edge of what the population and industry can still handle.

On the one hand, there is the vast subsidization of 'green energy', which is not only thoroughly uneconomic and blighting the landscape, but the costs of which have been off-loaded on consumers, who pay a special 'ecological fee' on top of their already far too high bills.

On the other hand, after the Fukujima accident, Germany's government quickly gave in to pressure from the Greens and decided to completely phase out nuclear energy (as if Germany were in danger of being hit by a tsunami). This is of course a completely futile gesture, as the country is surrounded by other countries brimming with nuclear reactors over which it has no control whatsoever (admittedly, even one nuclear accident would be one too many). However, this hasty step has once again made electricity more expensive.

Oil and Gas Reserves Infographic

We have come across a neat infographic published by RIA Novosti on the countries harboring large oil and gas reserves – all data are per capita and in USD terms.

Indebted Rusal flags steeper loss for 2013 due to Norilsk Nickel

Loss-making Russian aluminium group United Company Rusal Plc said it has revised down its earnings for 2013 after a review of its share of profits of associates in Norilsk Nickel showed the figure was overstated by $100 million.

Rusal is of the view that a lower profit share in Norilsk Nickel will have an adverse impact on its consolidated financial statements for 2013, the world's biggest aluminium producer said in a filing to the Hong Kong bourse on Thursday morning.

Rusal's 2013 loss has now been revised to $3.322 billion from $3.222 billion and its share of profits of associates should be $84 million instead of $184 million, it said.

Carrying value of the company's investment in Norilsk Nickel, the world's largest nickel and palladium producer, should be $7.801 billion, rather than $7.901 million.

Rusal had reported its full-year net loss for 2013 was at $3.22 billion, versus $528 million loss in 2012. 

Lenders have granted the world's biggest aluminium producer a three-month breather, giving the loss-making firm time to try to hammer out revised terms for $3.7 billion of debt repayments without risk of default. 

Copper Refusing to Budge, Even for an Earthquake

Speculations regarding Chinese demand continued to keep the red metal in flux this week as copper rose to $6,675 per tonne on Monday on hopes that China would step in aggressively to meet economic growth targets. Today, the pendulum swung again, as apprehension over the upcoming release of Chinese data drew prices back by 0.5 percent to $6,636.50 per tonne. Other factors have failed to make much of an impact on copper prices .

Chile copper mines were rocked by an 8.2 magnitude earthquake on April 2, causing prices to rise up to 1.1 percent according to Bloomberg. However, most of Chile’s larger copper mines remained largely unaffected, and even though the country was forced to close several ports, metal prices continued to react more to an expected global surplus and slowing demand from China than to news of the quakes.

On Tuesday, Reuters reported that Japan could expect an increased copper demand due to expanding urban development and a greater amount of refurbishment of older infrastructure. Furthermore, the country is seeing an increased demand for copper automobile parts and copper electric cable as a result of the construction of new solar power plants on the island nation, but demand from the small island nation will not be enough to make a dent in the worldwide surplus. According to Reuters, Japanese demand will likely be met by a 4 percent increased output from local miners.

Industry leaders are meeting this week at the CESCO world copper summit in Santiago, and the worldwide surplus is definitely up for discussion. Notably, Thomson Reuters released its much anticipated annual GFMS copper survey tuesday, further highlighting forecasted trouble for red metal prices. The report predicted a modest surplus of 2 percent relative to global consumption, despite robust economic growth increasing demand for copper consumers.

Is overproduction halting?

In recent weeks, miners have so far fulfilled the Thompon Reuters prediction that copper companies will continue to follow through with investments they made during the red metal boom years, further contributing to the broader trend of a growing copper surplus.

Chilean miner Coldelco revealed it has found significant deposits near its current South American operations this week following explorations over the past four years, while Copper Mountain Mining Corporation (TSX:CUM) achieved record production results from its British Columbia Copper Mountain mine for the first quarter of 2014.

However, it is also worth noting that Freeport McMoRan Copper & Gold Inc (NYSE:FCX) may fail to meet a deadline for its copper smelter venture with Indonesia’s Aneka Tambang, which could mean a dramatically reduced copper output from the fifth largest copper mine in the world if the miner is unable to comply with recent changes to Indonesian export laws. Furthermore, Bloomberg reported that a sizeable portion of copper projects under consideration in Chile are being revised or postponed.

Investors are speculating that copper may have finally bottomed, as Canaccord Genuity noted that shares for Teck Resources (TSX:TCK.B) and First Quantum Minerals (TSX:FM) have traded up. However, the market is still poised to react in either direction to China’s economic intentions.

Zinc Hits One-month High as Analysts Forecast Bright Future

A market in deficit?

The ILZSG said last week at a Portugal-based meeting that it sees that trend continuing in 2014. Specifically, it believes that, driven by increased zinc usage in China, Europe and the United States, global demand for the metal will exceed supply by 117,000 MT this year, as per The Wall Street Journal. Respectively, consumption in those locations is expected to rise 5.8, 3 and 1.7 percent. For its part, worldwide zinc use should rise by 4.5 percent, hitting 13.58 million MT.

Meanwhile, the group expects global zinc mine production to increase just 2.6 percent, to 13.57 million MT.

Of course, it’s impossible to say with certainty where zinc prices are set to head. But if the ILZSG is correct and zinc demand does continue to outpace supply, positive price movement may be in store for the base metal.

Looking longer term

Two longer-term — but equally positive — zinc forecasts, both out of the aforementioned International Zinc Conference, reveal that at least two zinc market watchers are optimistic that further good fortune is in store for zinc.

One is Stephen Wilkinson, director of the International Zinc Association. Platts quotes him as saying that new initiatives could add 1.9 million MT of demand to the zinc market over the next three years. Interestingly, Wilkinson identified health and fertilizer applications as two “key areas of demand” for the metal moving forward, though he also said that “[z]inc is becoming more and more married to steel.”

The other is CRU analyst Helen O’Cleary. She told conference attendees that zinc prices could rise to between $4,000 and $4,500 per MT by the end of the decade, another Platts article states.

That’s a far cry from the $2,060 per MT that LME zinc was selling for at the beginning of January and even further from yesterday’s price tag. However, O’Cleary believes the prediction is realistic given that during that time “demand will run ahead of supply pushing the metal closer to ‘pinch point’” — essentially, she’s counting on a continued deficit.

Zinc market watchers have awhile to wait before it becomes clear whether higher prices for the metal will become the norm. Until then, perhaps they had best enjoy the metal’s most recent high point.

Zinc Rises to One-Month High on IMF Outlook for Economy

Zinc prices advanced to a four-week high on speculation that global economic gains forecast by the International Monetary Fund will spur demand for the metal amid declining supplies.

Stronger U.S. growth this year and next will help the world economy withstand weaker recoveries in emerging markets including Brazil and Russia, the IMF said today in a report. Refined supplies will fall short of consumption by 117,000 metric tons this year, the International Lead & Zinc Study Group said on April 3.

“All these reports could do is remind people that the fundamentals are decent and demand isn’t bad,”Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “Some people are reversing their short positions,” or bets on price declines, he said.

Inventories tracked by the LME have dropped 28 percent in the past 12 months.