ALU­MINIUM

Dalal Street Investment Journal - - SPECIAL REPORT -

Alu­minium is the most widely used non-fer­rous metal. Over the decades, alu­minium con­sump­tion growth has out­paced all other met­als. The world’s lead­ing alu­minium mar­ket is China and other ma­jor con­sumers of alu­minium are Ja­pan, Europe and the US. The main in­dus­tries with high­est alu­minium con­sump­tion are con­struc­tion, transport and pack­ag­ing. In the de­vel­oped coun­tries, the de­mand for alu­minium comes mostly from the rapidly grow­ing transport in­dus­try, which is driven by an ex­pand­ing auto mar­ket. Ad­di­tion­ally, de­vel­op­ing coun­tries are ex­pand­ing their in­fra­struc­ture; there­fore, the de­mand from the con­struc­tion sec­tor has been up­beat. Alu­minium prices have soared around 24 per cent on a YTD ba­sis. Alu­minium, like other com­modi­ties, is driven by an un­der­ly­ing de­mand­sup­ply equa­tion. The year 2016 was the first year in a decade when alu­minium mar­kets en­tered into a sup­ply deficit. Bet­ter-than-ex­pected Chi­nese de­mand cou­pled with low­erthan-ex­pected Chi­nese sup­ply sup­ported alu­minium prices. Con­sid­er­ing that China ac­counts for nearly 60 per cent of global pro­duc­tion of alu­minium, the Chi­nese gov­ern­ment's crack­down on ex­ces­sively pol­lut­ing alu­minium smelters with help prices to re­main firm. Alu­minium de­mand will re­ceive a boost in the mid-term, as au­to­mo­tive pro­duc­tion is likely to be on an up­surge. Even if au­to­mo­tive pro­duc­tion does not in­crease, au­to­mo­tive ma­te­rial sub­sti­tu­tion will pre­vent alu­minium pro­duc­tion from drop­ping.

CON­CLU­SION:

The com­mod­ity prices have hit an up­ward tra­jec­tory in the cur­rent year and are likely to con­tinue the mo­men­tum in both near term and medium term pe­riod. The oil prices are likely to rise on pro­duc­tion cuts by oil ma­jors and nat­u­ral gas prices are likely to hit con­sid­er­able highs on sup­ply dis­crep­an­cies. On the other hand, the price move­ments of coal, cok­ing coal and ther­mal coal is largely de­pen­dent on China’s coal pol­icy. The agri­cul­ture prices will be on a high on the back of rapidly grow­ing de­mand while fer­til­iz­ers are likely to rise as well on bet­ter de­mand and grow­ing pro­duce in the sec­tor. Fur­ther, the prices of pre­cious metal is also likely to rise on nu­clear threats and geopo­lit­i­cal ten­sions. Non-fer­rous metal prices surged dur­ing the last one year. The prices are ex­pected to hold steady in the com­ing times. Ac­tiv­ity in China will play a ma­jor role for the price move­ment of non-fer­rous met­als as the coun­try is one of the largest con­sumers and pro­duc­ers of non-fer­rous met­als. The com­modi­ties are fore­cast to ei­ther re-bal­ance in the near term or ex­hibit a bullish un­der­tone, thus safe­guard­ing higher profits for busi­nesses trad­ing in com­modi­ties.

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