The aluminium price seems to have landed relatively safely after a long period of steep decline since the peak in early 2011. During the first half of 2014, the aluminium market has settled around a price range of USD1,700-1,900/MT. With the aluminium price back on the ground, we take a look at the outlook for the aluminium market for the second half of the year. Overall, we see four critical themes driving the market in the near term:
- The recent signs that the Chinese economy is stabilising following a period of slowdown and now is moving into a phase of moderate recovery will limit an important downside risk to the aluminium price and will provide support over the coming months.
- The Indonesian mineral ore export ban, which came into effect in January and has tightened global supplies of bauxite, has not had a major effect on the market for aluminium compared to the spike seen in the nickel price this year. However, upside risks prevail as Chinese stocks are gradually run down.
- A lower Oil price and a higher US Dollar will weigh on the aluminium price and limit the upside from the above mentioned factors by reducing producers energy costs and lowering demand from non-dollar based consumers.
- The large aluminium stocks will gradually normalise as the global economic recovery gains further ground and raises demand for the grey metal. It will add further support to prices and narrow the present contango. In this research paper, we go into detail on each of the above factors. While these factors will weigh differently on the aluminium market, we expect the net effect on the aluminium price to be positive and push the aluminium price well above USD1,900/MT by the end of the year from the current level around USD1,775/MT.
The combination of further strengthening of the global recovery driven by, among other things, a rise in investment demand and supply uncertainties will keep upward pressure on the back end of the forward curve, while a decline in stocks may relieve some downwards pressure on the front end of the curve and narrow the present contango.
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