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22. January 2008

Aluminium prices may fall 11% on rising Chinese supply

Shanghai (China) - Aluminium prices may decline for a second straight year on rising global supplies led by China, according to CRU International Ltd. Prices of three-month futures on the London Metal Exchange may average 11% lower this year to $2,361 a metric tonne, after falling 14% in 2007, Wan Ling, a metals and mining researcher at CRU, said in a Shanghai forum on January 19.

Rising electricity and materials costs will limit the decline, the second loss in six years, she said. Industrial metals are falling on concern a slowing US Economy will curb demand as global supply increases. That could squeeze profit margins at producers who are facing rising costs. Global supplies of aluminium, used in plane parts and packaging, will rise 11% to 42.2 million tonne this year, resulting in a surplus of 1.4 million tonne, Wan said.

Most of the new supply is coming from China, she said. Rising electricity costs in China and India ‘’could increase upside risks’’ in aluminium prices, as a shortage of power may curb production, Wan said. Electricity, which accounts for 44% of aluminium production costs globally, is twice as costly in China, according to CRU. The average marginal cost of aluminium production globally was $2,216 a tonne last year, compared with 18,000 yuan ($2,485) a tonne in China, she said. Aluminium for delivery in three months rose 0.3% to $2,458 a tonne at 12:45 p.m. in Shanghai.

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