ALUMINIUM WORLD MARKET REVIEW, DECEMBER 2003.

The situation at the aluminium world market is rather composite. On the one hand prices are rising (an average cash metal price marked in October - $1474, in November - $1508, and on December, 5 - $1552 per ton). But on the other hand metal producing and exchange stocks are increasing (LME - 1393 and COMEX - 141 thousand tons), including in Rotterdam - 238, Singapore - 130, Baltimore - 77, Liverpool - 71 ths tons, etc. Stocks of metal have reached the maximal level since 1994 and continue growing. Having regard to Brook Hunt report in 2002 the volume of overproduction was more than 680 ths tons and in 2003, predictably, aluminium surplus will mark 962 ths tons.

It should be noted that in November more than half of stocks of primary aluminium were concentrated on warehouses at Europe manufacturers - by 693 ths tons and Northern America - 429 ths tons. In view of available stocks of a scrap and aluminium products stocks at manufacturers on results of November, 2003 was 2,9 million tons of aluminium. It is necessary to notice that the statistics does not include the data of primary aluminium at manufacturers stocks in Russia, China, Azerbaijan, Iran, Korea, Tadjikistan, Poland, Romania and in Ukraine.

Remind that growth of manufacture was obvious in 80-s in one of the main consuming branches - automobile industry. Also the weight of aluminium used in automobiles simultaneously increased: in the 70-s on producing of the automobile required 60 kg of this metal, in 90 - it increased up to 90 kg. But crisis of economic and recession in aircraft construction have lead to aluminium consumption reducing when purchases of metal were reduced by 2,8 % and manufacturers were not able to influence upon reduction of demand in time in 2001-2002.

According to the International Institute of aluminium report manufacture of this metal in the world in the period of January - November, 2003 has grown in comparison with the same period of the last year by 3,4 % or up to 20 million tons. Thus the basic stimulating factor of growth of manufacture and the prices is growth of economy of USA and China. At the same time aluminium world prices were growing against its stocks increasing in November. It testifies the possible delay of prices rising in near future.

On the other hand, rates of manufacture growth were supported by appearance of new players in the market. Especially unpleasant for the transnational aluminium companies there was a fast growth of manufacture in China. In few years this country has turned from the large importer of aluminium to its exporter. The Gulf States are increasing its manufacture having the cheap electric power. Dubai Aluminium company, UAE and Bahreini Alba company are going to expand its capacities (in 1.5 times - up to 1, 1 million tons yearly).

Adam Rouly, analysts of Macquarie Bank predicts due to acceleration of growth of economic the deficiency in 100 ths tons in the market of aluminium in 2004. Others analytics suppose that China influence upon aluminium market recovery. The Chinese domestic aluminium market will grow by 19 % while growth of the western market will mark only 4 % in 2004. According to A. Rouli's opinion world aluminium demand will increase by 8 % in 2004. Manufacture of aluminium in China has already grown by 28 % accounting to 952 ths tons for the first 11 months of the year and should reach 5,1 million tons for a year. 11 million tons of primary aluminium must be produced in China in 2007 though the rising prices of aluminum oxide can prevent it. Growth of aluminium consumption will mark 9-10 % for the period of 2000-2010 in China. It will be due to new infrastructure establishment with assistant of foreign investments.

The Chinese companies are establishing new and expand existing aluminium factories to satisfy a growing demand for metal in the country, basically, in motor industry and construction. Though aluminium production in China in 2004 should grow up to 5,3-5,5 million tons, its export will remain at the same level of 2003 as changes in the taxation of export of primary aluminium - export rate reduction from 15 to 8 % are expected in the next year will lead to reduction of export of metal. But this year before establishing of the new duties exporters are going to grow export of aluminium: export of aluminium for 9 months 2003 has grown by 50 % in comparison with the same period of 2002 and of the raw aluminium alloys by 17 %.

Now the share of China in the world market of aluminium is 20 %, in 2000 it was 5 %. The demand in raw material is rather higher than growth of aluminum oxide production at the Chinese enterprises: it is required two tons of aluminum oxide for manufacture of one ton of aluminium. In 2010 import of aluminum oxide to China will be doubled up to 12 million tons, according to forecasts of local experts which also expect growth of manufacture of aluminium in the country.

Remind that aluminium manufacture one of the most power-intensive: for one ton production it is required 13-14 megawatt-hour of the electric power which share in the cost price of aluminium is 20-35 %. When the aluminium cost reducing to $1300-1400 per ton, the majority of manufacturers is not able to cover its growing costs. In 2002 western companies profitability of aluminium manufacture has sharply decreased to 7,2 % - Alcoa and to 0,8 % - Alcan (against usual 15-20 %). In similar conditions aluminium corporations are trying to reduce the electric power costs and the cost of aluminium production. The transnational companies leading in the market try to strengthen the position due to transfer capacities to other countries with low cost of the electric power and labour. But high electric power cost in China will hardly lead to closing of the enterprises though some aluminium factories will sustain losses. Having the electric power cost 0,3-0,35 yuans ($0,04/ kw-h) and 3500 yuans per one ton of aluminum oxide($422) the majority of factories will be competitive. But many aluminium factories (about 30 % Chinese capacities, in 2002 marked 5,46 million tons), working on out-of-date technology and polluting an environment, will be stopped under the decision of the government.

About 10 % of overall aluminium production is made from scrap (secondary aluminium) and almost 90 % are melting from the enriched natural minerals (primary aluminium). There are three stages of primary aluminium production: extraction of aluminium-bearing raw material (basically it is bauxites); processing of bauxites and reception of the cleared aluminum oxide(oxide aluminium); electrolytic melt of pure metal.

Usually aluminium production stages are territorially separated. Extraction of raw material (aluminum oxide extraction) is concentrated in regions with the great stocks of appropriate minerals. Australia extracts about 45 million tons of bauxites, Guinea - 16,5 million tons, Brazil - 12,5 million tons. The share of these countries is 60 % of overall world extraction of raw material and about 55 % of aluminum oxide production.

For aluminium melting it is required the cheap electric power and areas of this metal consumption. Today approximately two third of overall world production is concentrated in China, Russia, USA, Canada and EU countries. In unfavorable conditions for price establishment one of the main ways of costs reduction for transnational aluminium holdings there is maintenance of raw safety and balance of all three groups of capacities.

Aluminium primary account for 50% (monetary terms) of overall Russian export of nonferrous metals (ingots). At the same time over 60 % of raw material for aluminium production is imported as from the CIS countries (Ukraine, Kazakhstan), and from the Far abroad countries (Australia, Jamaica, Greece, etc.), that is caused by significant difference in available capacities on raw material extraction and production and metal release. In 90-s primary aluminium export was growing annually reached 3,3 million tons in 2002. In the long view due to marked growth of industrial production in the country the demand for aluminium, as well as for other nonferrous metals, certainly, will increase, that should influence upon reduction of volumes of the Russian export. Export to the countries CIS of the overall Russian export of this metal does not exceed 3-7 % yearly, thus the main part of metal (85-95 %) is supplied to Kazakhstan and Ukraine. These countries are the main suppliers of aluminium scrap for secondary aluminium production to Russia.

BHP Billiton company decides to focus on production of aluminum oxide to the detriment of expansion of capacities of the aluminium production. This announcement was made by executive director of Mike Salamon's company. Aluminium production BHP Billiton - the fifth in the world - has to take into consideration with a situation developed in the market when demand for aluminum oxide exceeds its supply of buyers for primary aluminium. The main part of a growing demand falls at China. About 4,2 million tons of aluminum oxide accounts for local Australian enterprises producing by BHP Billiton yearly. Company will expand the market that requires increasing of aluminum oxide production up to 6 million tons yearly. Acting on the basis of M. Salamon opinion costs of production on a unit of production of BHP Billiton company - one of the lowest in the world. In 2002-2003 financial year BHP Billiton produced 1,0 million tons of primary aluminium, extracted 13,6 million tons of bauxites. According to forecasts the company will produce 1,3 million tons of aluminium and extract 14 million tons of bauxites annually in 2004-05. The main deposit of aluminum oxide belonging to BHP Billiton is bauxite mine Worsley in Australia, there pure aluminum oxide production is settled.

According to AME Minerals Economic forecasts the aluminium supply will be exceeding demand for three - four years, and in 2003-2004 this disbalance will be growing. Having regard to Man Financial report in the near future a level of support on three-monthly futures is $1525, a level of resistance is $1590 per ton of aluminium on LME.

Finally we shall notice that extraction and processing of mineral raw was always a risk bearing sphere for investments with a long time of recovery of outlay. In conditions of a severe competition and prices reducing transnational corporations are trying to minimize risks and to develop deposits in the states with predicted economy and stable political situation. The majority of the advanced industrial states, being guided by different reasons and using various ways of influence, gradually supersede from the territories of the enterprise on extraction and processing, focus on import of raw products from other countries. And the increasing number of the countries of the third world set up the strategy of development of raw industries due to foreign investments. Due to this fact, on the one hand, large corporations have an opportunity to choice objects for investment, and on the other hand - it lead to costs and the world prices reduction for the majority of kinds of raw production (mainly, due to saving from payment of labour and expenses for ecology).

Vladislav NIKOLAEV, Expert, KZ-today IA