Power crisis threatens to push aluminium to record
May 13, 2008
By Pratima Desai
London - Power shortages in China and South Africa may disrupt aluminium output again in the next few months, pushing the price of the metal to record highs.
Energy-intensive aluminium production was curtailed earlier this year because of power outages in both countries, helping prices on the London Metal Exchange to spike through the key level of $3 000 (R23 300) a ton.
Electricity supplies are now more stable and prices have fallen back to about $2 900 a ton, but the risks of further outages are rising as the seasons change.
"If [aluminium] supply disruptions emerge to a large enough degree and for long enough, then the potential for a price spike is very real," said Gayle Berry, an analyst at Barclays Capital.
The Chinese summer will mean greater use of air conditioners, while the winter season in South Africa means higher heating needs.
Analysts say that could trigger a price surge to and possibly beyond the record high for the metal of $3 310 a ton, set in May 2006.
"Any supply disruptions in today's globally tight supply situation may have a positive effect on the aluminium price," said Eigil Madsen, the vice-president of strategy and business development at Norwegian aluminium group Norsk Hydro.
"Reports say that coal stocks are generally low in China and that the summer period, with air conditioning and high power consumption, may lead to further power supply disruptions."
Analysts estimate lost output in southern Africa so far this year at 120 000 ton. Lost output in China over the same period is thought to be in the region of 550 000 tons.
Water shortages leading to power shortages in Brazil, Tajikistan and New Zealand have cut supplies further.
Total aluminium production lost so far this year is estimated at more than 700 000 tons, about 2 percent of the 37.4 million tons produced last year, according to data from the International Aluminium Institute.
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