Record high LME stocks overwhelm stimulus’ potential

- February 27th, 2009

Aluminium for delivery in three months on the London Metal Exchange fell to a low of $1,279 a tonne – the lowest level since November, 2001. Record high stocks were responsible for the overwhelming downward pressure. Aluminium LME warehouse inventories leapt by 13,125 tonnes to stand at 3.17 million tonnes, their highest ever.

By Leia Michele Toovey- Exclusive to Aluminum Investing News

America’s stimulus plan has $6.5 billion earmarked for aluminum transmission lines. The expansion of the aluminum transmission lines will enable new renewable sources of green energy, such as solar and wind to be connected to the transmission grid.  According to the American Wind Energy Association, investing in the power grid to allow wind to supply 20 per cent of the electricity needs of the Eastern U.S. would save consumers $12 billion a year.  The announcement that tonnes of aluminum will be used in the stimulus plan failed to stoke prices on the LME.  Aluminium for delivery in three months on the London Metal Exchange fell to a low of $1,279 a tonne – the lowest level since November, 2001.  

Record high stocks were responsible for the overwhelming downward pressure. Aluminium LME warehouse inventories leapt by 13,125 tonnes to stand at 3.17 million tonnes, their highest ever. Stocks have risen more than 35 per cent since December.  According to Aluminum Association Inc, Aluminum demand in the U.S. and Canada declined 16 per cent in December from a year earlier and 8.1 per cent for all of 2008.  Shipments by producers in both countries plus imports equaled 10.3 million tonnes in 2008 and 0.73 million tonnes in December. Output dropped 2.6 per cent in January from December, the report said. Aluminum prices on the London Metal Exchange fell 36 per cent last year and 12 per cent in January.

In China, The State Reserves Board (SRB) bought 290,000 tonnes of primary aluminium from local smelters last week, and might have contracted to import up to 240,000 tonnes of refined copper. Talk of SRB buying to boost reserves and the “very tight availability” of copper scrap should underpin the prices, analysts said. The SRB will purchase 140,000 tonnes of primary aluminum from the Aluminum Corporation of China Co Ltd China’s largest alumina and primary aluminum producer, while the remaining 150,000 tonnes will be sourced from 10 smaller producers.  There is skepticism as to whether the purchase will have any affect on aluminium prices as purchases amounts have turned out to be smaller than expected. In addition, the SRB purchase, compared with the more than 3 million-tonne stockpile at the London Metal Exchange is too limited to make a difference to fundamentals.

Company News

Century Aluminum Co. (NASDAQ:CENX) expects to take up to $30 million in charges for shutting down its Ravenswood smelter, according to a Securities and Exchange Commission filing. Canceling contracts will account for another $7 million to $8 million in charges, though the document filed Tuesday says the company expects a gain of $8 million for curtailing some pensions. Century said cash expenditures for closing Ravenswood should total about $34 million over the coming two years. Century announced plans to close the 51-year-old operation Feb. 4 because of a drop in aluminum prices and increased operating costs. The company announced on Thursday its fourth-quarter loss widened on big charges for goodwill impairment, taxes and an inventory write-down on hedging. The net loss was $700.2 million, or $14.27 per share, compared with a loss of $112.3 million, or $2.74 per share, in the same quarter of 2007. Revenue dropped to $402.2 million from $432.1 million, as the price of aluminum plummeted.

Kaiser Aluminum Corp said on Wednesday it is on the lookout for acquisitions at a time when the industry is struggling with low prices and depressed demand in a global economic slump.” If the economic distress continues, there could be opportunities on the horizon,” President, Chairman and Chief Executive Officer Jack Hockema told Wall Street analysts. “We continue to look for complementary acquisitions that would add value,” he said. On Tuesday, Kaiser Aluminum, which itself emerged from four years of Chapter 11 bankruptcy protection in 2006, posted a quarterly loss, which it attributed largely to declining production and one-time charges.

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