View Count: 170 |  Publish Date: December 26, 2012
Aluminum Glut No Bar to Gains as Barclays Says Sell: Commodities
By Agnieszka Troszkiewicz & Maria Kolesnikova - 2012-12-26T05:29:50Z
The record glut in aluminum will beno bar to rising prices because of delays in getting metal fromwarehouses, even as Barclays Plc advises investors to sell andMorgan Stanley says it has the worst outlook of any commodity.
Stockpiles will expand for at least the next four quarters,reaching a record 8.67 million metric tons by the end of 2013,or enough to make about 62 million cars, Barclays estimates.Production will exceed demand by the most since 2009 as outputexpands from China to Saudi Arabia, the bank says. Futures willrise as much as 16 percent to $2,400 a ton next year, the medianof 29 analyst estimates compiled by Bloomberg.
The gains are forecast as the metal is not always available.Buyers are waiting about a year to get metal from warehouses inDetroit and the Dutch port of Vlissingen, which hold the mostinventories. As much as 80 percent of stockpiles tracked by theLondon Metal Exchange are locked into financing deals andunavailable to consumers, Credit Suisse Group AG estimates. Thatmeans some customers are paying record premiums to get supply,according to Platts, a unit of McGraw-Hill Cos.
“You have what I would call an artificial tightness in themarket and that’s created by financing,” said Jeremy Baker, whomanages about $850 million of assets at the Vontobel BelvistaCommodity Fund in Zurich. “If you look at it from a purelyfundamental aspect it is probably one of the metals that is theleast attractive, primarily due to excessive supply.” Asset Rankings
Aluminum rose 2.7 percent to $2,075 on the LME this year.Prices will average $2,225 in the final three months of 2013, or10 percent more than this quarter, the median of 19 estimatesshows. The Standard & Poor’s GSCI gauge of 24 commodities fell0.9 percent and the MSCI All-Country World Index of equitiesgained 13 percent. Treasuries returned 2 percent, a Bank ofAmerica Corp. index shows.
Inventories tracked by the LME rose 5.3 percent to 5.23million tons this year, reaching a record Dec. 21, bourse datashow. Premiums paid for immediate supply in the U.S. Midwestrose 45 percent this year, while in Europe they increased about80 percent, Platts data show. Buyers have to wait as long as 64weeks to get metal from warehouses in Detroit and 57 weeks inVlissingen, according to data compiled by Bloomberg. The waittimes at the locations lengthened as total bookings jumped themost in more than 10 months to 1.95 million tons, the highest onrecord, LME data on Dec. 24 showed. Financing Deals
About 50 percent of global inventories, including thosemonitored by the LME, may be tied up in financing deals, CreditSuisse estimates. The transactions typically involve asimultaneous purchase of metal for nearby delivery and a forwardsale to take advantage of a market in contango, when contractswith later delivery months cost more than nearer-dated metal.
Global production will jump 7.4 percent to 51.4 milliontons next year, compared with a 3.4 percent gain in 2012,Barclays estimates. While consumption will advance 6.3 percent,the most of any industrial metal tracked by the bank, the gapwith supply will widen to 1.66 million tons. Investors shouldsell into any rallies, Barclays’ analysts led by London-basedGayle Berry wrote in a report Dec. 14.
“Demand growth for aluminum has been stronger than anyother base metal over the past decade, but it’s done not a lotfor prices because supply has grown so strongly,” Berry said.“That’s going to be the picture for next year.” Weakest Outlook
Aluminum has the weakest outlook of 21 commodities trackedby Morgan Stanley, the bank said in a Dec. 6 report. Theincrease in premiums caused by financing deals is keeping mostsmelters profitable and limiting the output cuts needed to curbthe glut, according to the bank’s analysts, led by HusseinAllidina in New York.. About 1.4 million tons of productioncapacity was shut over the past year, not enough to prevent asixth consecutive annual surplus, Morgan Stanley estimates.
The European Commission, the executive arm of the 27-nationEuropean Union, said last month it was discussing the premiumsbeing paid by consumers and lines at warehouses. The LME changedits rules this year to speed up deliveries, and that may lowerpremiums, diminishing returns for producers.
Moody’s Investors Service Inc. said Dec. 18 it may cut thecredit rating of Alcoa Inc. (AA), the largest U.S. producer, to junk.Equity analysts are more bullish, predicting a 23 percentadvance in the New York-based company’s shares to $10.56 in 12months, according to the average of 18 predictions. Alcoa’sprofit will rise to $722.4 million in 2013, from $77.7 millionthis year, the mean of 10 estimates shows. Rusal’s Profit
United Co. Rusal, the world’s largest producer, will reportan almost threefold gain in profit to $957.4 million next year,according to the mean of 14 estimates. Shares of the Moscow-based company will advance 11 percent to HK$5.46 in 12 months,according to the average of 18 predictions. Rusal’s costs perton are $1,936, it said in a presentation Nov. 12.
Some smelters’ margins are being squeezed by rising energyprices, which Bloomberg Industries estimates account for about26 percent of production costs. Brent, Europe’s benchmark crudeoil grade, averaged a record $111.66 a barrel this year andnatural-gas futures jumped 11 percent in New York.
Producers using coal-fired power generation may do betterafter prices for the fuel dropped 24 percent this year in thenorth-east Chinese port of Qinhuangdao, according to data fromIHS McCloskey. About 85 percent of Chinese production uses powerderived from coal, according to Wood Mackenzie Ltd., and thenation accounts for 45 percent of global output. Car Sales
Stronger demand may help ease the glut. Transportationaccounts for 25 percent of consumption and construction 24percent, according to CRU, a London-based researcher. Global carsales will rise 2.5 percent to a record 82.77 million units nextyear, says LMC Automotive Ltd., a researcher in Oxford, England.An average car has about 140 kilograms (309 pounds) of aluminum,according to the European Aluminum Association.
The International Monetary Fund expects global growth toadvance to 3.6 percent in 2013, from 3.3 percent this year. Theeconomy of the 17-nation euro area will expand again from thethird quarter, based on the median of 30 economist estimates.China, the biggest aluminum consumer, will keep accelerating forat least the next two quarters, according to the forecasts.
“The market balances generally don’t matter,” saidMichael Widmer, a London-based analyst at Bank of America.“What matters is what is happening on the LME. You just have topay up for getting hold of the metal.”
To contact the reporters on this story:Agnieszka Troszkiewicz in London at;Maria Kolesnikova in London at
To contact the editor responsible for this story:Claudia Carpenter at

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