About 50 percent of global inventories, including those monitored by the LME, may be tied up in financing deals, Credit Suisse estimates. The transactions typically involve a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery months cost more than nearer-dated metal.
Global production will jump 7.4 percent to 51.4 million tons next year, compared with a 3.4 percent gain in 2012, Barclays estimates. While consumption will advance 6.3 percent, the most of any industrial metal tracked by the bank, the gap with supply will widen to 1.66 million tons. Investors should sell into any rallies, Barclays’ analysts led by London-based Gayle Berry wrote in a report Dec. 14.
“Demand growth for aluminum has been stronger than any other base metal over the past decade, but it’s done not a lot for prices because supply has grown so strongly,” Berry said. “That’s going to be the picture for next year.”
Aluminum has the weakest outlook of 21 commodities tracked by Morgan Stanley, the bank said in a Dec. 6 report. The increase in premiums caused by financing deals is keeping most smelters profitable and limiting the output cuts needed to curb the glut, according to the bank’s analysts, led by Hussein Allidina in New York.. About 1.4 million tons of production capacity was shut over the past year, not enough to prevent a sixth consecutive annual surplus, Morgan Stanley estimates.
The European Commission, the executive arm of the 27-nation European Union, said last month it was discussing the premiums being paid by consumers and lines at warehouses. The LME changed its rules this year to speed up deliveries, and that may lower premiums, diminishing returns for producers.
Moody’s Investors Service Inc. said Dec. 18 it may cut the credit rating of Alcoa Inc., the largest U.S. producer, to junk. Equity analysts are more bullish, predicting a 23 percent advance in the New York-based company’s shares to $10.56 in 12 months, according to the average of 18 predictions. Alcoa’s profit will rise to $722.4 million in 2013, from $77.7 million this year, the mean of 10 estimates shows.