Tuesday June 5, 8:33 am Eastern Time
Aluminium seen briefly boosted by Brazil woes
By Karen Norton
LONDON, June 5 (Reuters) - Aluminium prices may rise in the short term as power shortages force more production capacity to be idled in Brazil, but slack world metals demand will prevent any surge, analysts said on Tuesday.
Brazil's energy woes were far worse than previously thought, broker J.P Morgan said in a report, adding that it expected 25 percent power rationing to begin in the north from July 1 as part of efforts to transfer supplies to the northeast. That would affect the country's two largest aluminium smelters -- CVRD's Barcarena and the Sao Luis plant jointly owned by Alcoa (NYSE:AA - news) and Billiton (quote from Yahoo! UK & Ireland: BLT.L). Those two plants, accounting for around 58 percent of Brazil's total annual capacity, were previously thought to be safe.
Along with earlier output curbs, that would leave almost 400,000 tonnes per year (tpy) of Brazilian capacity idle -- compared with an earlier forecast of 100,000-125,000, J.P. Morgan said. ``Prices could jump $50, but the rally will be short-lived unless demand turns around,'' said John Martin of industry consultants CRU International. At 1130 GMT on Tuesday the London Metal Exchange three month price was indicated at $1,515 a tonne. Adam Rowley of Macquarie Equities said a rise in world demand was still several months away. He said the U.S. economy was showing some signs of bottoming out, but saw evidence of weakening in Europe and Asia. Previously it was believed Brazilian power rationing as a result of water shortages would affect only smelters in the south of the country.
In recent weeks Alcoa Inc (NYSE:AA - news), Alcan (Toronto:AL.TO - news) and Grupo Votorantim announced curtailments affecting four of Brazil's seven aluminium smelters. CRU's Martin estimated the total loss, including the plants in the north, at 330,000 tpy. He said the figure excluded capacity that used self-generated power. J.P. Morgan did not rule out further losses, adding: ``Moreover, we believe some smelters will opt to reduce even more output than their power rationing guidelines in order to sell the freed-up power into the Brazilian spot market.'' The report said the cutbacks, originally set to last for just six months, might remain in place through the first quarter of 2002. But some analysts thought they might continue for up to 12 months.
ALUMINA
Analysts said the country's alumina refineries were unlikely to be greatly affected by the energy problems because they were not big electricity consumers. But CRU's Martin said refineries might have to curtail output due to lower demand from domestic smelters. ``The problem is finding a home for alumina after the smelter cutbacks in the U.S. Pacific Northwest,'' he added. Analysts recently estimated the alumina market would record a surplus of 1.4 million tonnes this year, mainly due to the power-related idling of around 1.5 million tpy of a total 1.66 million tonnes of smelting capacity in that region.
Zinc production in Brazil has also been affected by the power rationing. Last Friday number two producer Paraibuna de Metais announced a 13 percent cutback at its 93,000 tpy smelter. Takk has circulated in the market of a temporary closure of the entire plant. J.P. Morgan said a 25 percent curtailment at sole copper producer Caraiba Metais would have little impact on the global market and would be partially offset by an expected decline in domestic offtake in the next two years. |
