Aluminium, zinc set to forge ahead - analysts
February 3, 2005
By Stephen Farr
London - Aluminium and zinc prices will probably rise more than other base metals this year as mining companies struggle to produce enough ore and as power shortages disrupt smelters in China, according to Citigroup analysts.
Citigroup also raised its price forecasts for copper, nickel, lead, iron ore and coking coal.
Demand for aluminium and zinc was exceeding output from mines and scrapyards, the analysts said in a report.
"In the aluminium market, refined production will be further restricted by alumina availability and power shortages in China," the January 31 report said. With zinc, "we expect the market to move into a deeper deficit in 2005".
Citigroup boosted its price forecast for aluminium by 3 percent to $1 938 (R11 691) a ton and zinc by 11 percent to $1 277.
Aluminium sold for an average of $1 719 a ton on the London Metal Exchange last year, while zinc averaged $1 048.
Citigroup's forecasts are near the top of the range for estimates in a Bloomberg survey taken in December and January, which forecast a median of $1 788 a ton for aluminium and $1 146 for zinc.
Since then ABN Amro and Standard Bank have also forecast that aluminium and zinc would outpace other metals.
At 11am in London yesterday, aluminium futures rose 0.3 percent to $1 848 a ton, up 16 percent from the start of 2004. It reached a 10-year high of $1 972 on December 31.
Costs of alumina are rising as mining firms fail to keep up with demand from smelters. Alcoa, the world's biggest aluminium producer, said on January 10 that its second-half alumina and chemicals profit surged 47 percent.
"In the alumina market, capacity growth will be insufficient to meet projected growth in smelter capacity, forcing closures and cancellation of projects," the Citigroup analysts said.
"Alumina prices will be strongly supported in 2005 and 2006."
Wang Feihong, an analyst at Beijing Antaike Information, said last month that China, the world's biggest producer, would make 7.2 million tons of primary aluminium this year, up 7.4 percent from 2004. Global production of 31.5 million tons would fall short of demand by about 270 000 tons, he said.
China has cut loans and raised taxes to squeeze out smaller producers after surging demand for electricity caused blackouts across the country last year.
China also produces 25 percent of the world's refined zinc, but it became a net importer of the metal last year, with steel makers accounting for 47 percent of the metal's consumption.
Zinc futures rose 0.5 percent to $1 299 a ton in London yesterday, 28 percent up on the start of 2004.
They reached a seven-year high of $1 307 a ton on January 31 after Zhuzhou Smelter, China's largest zinc producer, said it had cut output by a third because of power outages.
As with aluminium, a lack of raw materials would limit output, Citigroup said. Only 1 million tons of mine capacity was due to start up in the next two years, further depleting inventories that fell 15 percent last year.
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