Aluminium prices gain 19% on infrastructure spend
The economic stimulus packages announced by various countries with a thrust on infrastructure spending seem to have boosted aluminium prices, which posted a quarterly gain for the first time in the last four quarters.
However, the huge stockpiles in the London Metal Exchange (LME) may cap any possibility of sharp spike in prices.
Aluminium prices have jumped 19.47 per cent in the second quarter this year to $1,663 a tonne from $1,392 a tonne in the first quarter. However, the gain was minuscule compared with the price of $3,136-$3,114 that prevailed between April and June 2008.
Besides the stimulus packages, the large inventory build-up by China boosted aluminium prices.
The Shanghai Futures Exchange (SHFE) accumulated 8,82,600 tonnes in the second quarter, resulting in occasional declines in LME monitored stockpiles.
The companies that will benefit from the rise in aluminium prices include the Government-owned National Aluminium Company and Vedanta Group companies, Bharat Aluminium Company and Madras Aluminium Company. With the raw material cost declining substantially, the Indian companies are set to post a good performance in the second quarter.
The average three-month forward price difference in the LME and the SHFE surged to $362 a tonne in May-June, with Shanghai being quoted at a premium. "China stockpiled 28,657 tonnes of aluminium, an increase of almost 100 per cent on a sequential basis.
Artificial demand
The inventory build-up created an artificial demand and spurred spot prices, ultimately leading to basis difference shrink at LME," said Mr Veeresh Hiremath, Research Analyst, Karvy Commodities. The average difference in the second quarter was $34.33 a tonne.
"With the world economy entering into a recession in second half last year, aluminium prices on the LME fell to a multi-year low of $1,279 a tonne. However, after a year, prices have only managed to recoup 50 per cent of the fall," he said.
Substitution for steel
High fuel costs and focus on fuel efficiency have resulted in substantial substitution of aluminium for steel so as to reduce weight, and hence energy consumption.
The US Government recently decided to introduce auto fuel economy standards, which would encourage automakers to invest in lighter, weight-saving materials, which turned out to be positive for the white metal.
The automobile industry, passing through difficult times, accounts for a major demand for aluminium. Sales of new vehicles are not gaining momentum owing to fall in personal income, leaving people to cut discretionary spending.
« Back
|