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21. July 2010

Aluminium major market developments in June

Reuters quoted analysts as saying that rising Chinese aluminium output and the start up of new capacity will offset cuts made by western aluminium firms and could push prices lower again as London Metal Exchange warehouses reach new heights.

But others believed that the market has some of the best prospects among LME traded metals, helped by a demand pick up later this year, further output cuts and near term supply worries.

Mr Angus MacMillan independent consultant said that "I wouldn't be surprised to see LME stocks at 5.0 million tonnes by the end of the year."

Mr MacMillan said that LME stocks were close to record highs of around 4.4 million tonnes. He estimated that between 1.5 million tonnes 2.0 million tonnes per year of mothballed and new capacity was being brought back on stream in China.

He said that it's difficult to see the market sustaining upward momentum and I would look for lower prices as the year wears on. He added that but others saw potential for higher prices if the economic picture improved and translated quickly into a pick up in aluminium demand from the transport and construction sectors. Also supportive was that nearby metal supplies are tighter, because companies with metal are using it as collateral to release cash tied up in stock.

Mr Dan Smith analyst at Standard Chartered said that we're deep into the cost curve and the dollar is likely to weaken. These are all factors which should help to boost aluminium.

Mr Nick Moore head of commodity strategy at RBS Global Banking and Markets, estimated around Q3 of aluminium smelters were losing money, making more cuts inevitable. He said that either we get more cuts or the industry turns into a charity and you don't get much philanthropy these days. He predicted that aluminium prices will average USD 1,550 per tonne in the Q3 rising to USD 1,875 in the fourth.

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