Alcan's CEO Expects `Slightly' Lower Aluminum Prices in a Year

Jan. 27 -- Richard Evans, chief executive officer of Alcan Inc., the world's second-largest aluminum producer, expects prices for the metal to be lower in a year.

Prices will ``on average,'' be ``slightly lower'' in 12 months, though there's a ``30 percent chance they will be significantly higher,'' Evans said today in an interview in Davos, Switzerland, at the World Economic Forum.

Aluminum for delivery in 15 months on the London Metal Exchange, the world's largest metals bourse, closed at $2,566 a metric ton yesterday, compared with $2,910 for metal for immediate delivery. Metal for delivery in 63 months, the longest- dated contract, closed at $1,924.

``I believe in the forward curve,'' as an indicator of where price will be, Evans said. Still, commodity price forecasts are best viewed as a ``probability distribution,'' he said.

Aluminum prices have gained for four consecutive years on the LME as producers failed to increase output fast enough. Stockpiles in warehouses monitored by the exchange reached a four-year low in November. They have since gained almost 8 percent and the benchmark three-month contract has declined about 16 percent from the record reached in May.

Evans took part in a debate today on commodities prices that included Morgan Stanley Chief Global Economist Stephen Roach and Rio Tinto Group Chairman Paul Skinner.

Commodities aren't in a so-called supercycle, when prices continue rising for several years or even decades, Roach said. Commodity prices, as measured by the Reuters/Jefferies CRB index of 19 futures contracts, began rising at the end of 2001. The index reached a record in May and has since declined 19 percent.

Pension Funds

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Part of the gain in prices from 2001 can be attributed to new money coming into commodities from investment and pension funds, Roach said. Investors may add $25 billion this year to the $110 billion already in commodity markets, according to Fimat USA LLC, a New York securities and commodities broker.

Some of the new money is coming from ``long-only investors,'' Roach said. That is, having a holding of a commodity or security in expectation of a rise in price.

``When commodities start delivering below-average returns, they'll dump you guys,'' the economist said.

Jeff Currie, global head of commodities research at Goldman Sachs Group Inc., the biggest securities firm by market value, told customers in London earlier this month that the ``long-term secular story'' in commodities ``is very much intact.''

The price of crude oil, gasoline, heating oil, copper, aluminum, zinc, sugar, cocoa, coffee, cattle, cotton and wheat have declined this year. Natural gas, tin, nickel, lead, corn, soybeans, orange juice, gold, silver and platinum have gained.