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December 15 th , 2006

Aluminum Update. December 15 th , 2006. Discussion Topics. LME Terminology Analyst Forecast LME Drivers Markets Comparative Pricing. 60 Day Aluminum Graph. LME. Volatility has returned.

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December 15 th , 2006

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  1. Aluminum Update December 15th, 2006

  2. Discussion Topics • LME • Terminology • Analyst Forecast • LME Drivers • Markets • Comparative Pricing

  3. 60 Day Aluminum Graph

  4. LME • Volatility has returned. • Fundamentals for Aluminum remain strong. Inventories are down to 36 days of supply. Inventory below 40 days marks tight supply. • Funds appear to be more active again as a result of the above. • Fear of China producing more alumina which could spark capacity start-up. Threat for downward pressure. • Alumina prices have fallen from $650 per ton to $240 per ton in a matter of months.

  5. MW Trans VS LME

  6. Metal Trading Terminology • Midwest Premium • Spot Price indicator-number showing how the market is moving from day to day • Backwardation-future price lower • Contango-future price higher

  7. Mid West Premium • Not a “premium” at all • The cost of acquiring metal from the source of closest supply • Has been running between .05-.06/lb in 2006 • These costs include • Cost of metal at the production source • Loading costs to ocean vessels • Ocean Freight • Discharging costs from vessel and load to rail or truck at destination ports • Interior Freight • Financing and storage costs • Insurance

  8. LME Going Forward

  9. Aluminum Price Drivers • Hedge Funds • Aluminum Inventory • China • Europe/Japan also picking up • Smelters

  10. Hedge Funds • Strongly influencing the commodities markets • On average, aluminum is sold 17 times before any metal moves from the LME warehouse • 200 Billion dollars in Hedge Funds

  11. 60 Day LME Warehouse Stocks

  12. 6 Month LME Warehouse Stocks

  13. China • Currently a net exporter could flip to net importer into 2007 • Demand up 20 % year to date vs 2005 • Aluminum production up over 20% year to date vs 2005 • China has become the #1 global consumer of aluminum

  14. Smelter Situation The surge in alumina supplies should allow some high-cost. Smelters to restart if electricity can be secured. U.S. – 2 smelter restarts slated for early 2007 Alcoa Intalco in the Northwest (90 KMT) Ormet Hannibal, Ohio (269 KMT) Will China restart?? Only if electricity can be secured.

  15. The Decline of U.S. Primary Aluminum Reduction Plants Early 1970s 34Operating Smelters in U.S. In the early 1970s the United States experienced a major energy crisis, which forced the closing of many smelters Early 1980s to 2000 23 Operating Smelters in U.S. 2004 14Operating Smelters in U.S. The year 2000 saw unprecedented energy costs, particularly in the Pacific Northwest, resulting in the curtailment of more U.S. smelters

  16. Common Alloy Comparative Pricing Current price levels using 5052 as a basis: 3003 (-.03/lb) 3105 (-.04/lb)

  17. Questions???

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