Rio Tinto expects aluminium market to recover, but cautious on short term

RIO Tinto believes aluminum markets are set to continue to recover but the company remains cautious on the short-term outlook.

Rio Tinto Alcan chief financial officer Phillip Strachan said prices were set to be driven higher by factors including the appreciation of the yuan, rising electricity costs in China, raw materials prices and the high capital costs of installing new capacity.

"Continued cost pressure on marginal cost producers will provide upward price lift," he said in a slide from a presentation delivered to analysts on a site visit in Queensland.

Rio Tinto Alcan expects strong aluminum demand recovery in 2010, with Chinese demand forecast to be between 18 per cent and 20 per cent higher than in 2009 and global demand to be up about 15 per cent.

Longer term, the group's base case assumption is for global aluminum demand to grow by between 4 per cent and 5 per cent a year over the next two decades.

Mr Strachan said the alumina market remains finely balanced and that China continues to drive the market, with its demand for the product forecast to rise 22 per cent in 2010 to 37 million tonnes.

Bauxite prices were trending higher driven by Chinese alumina refinery restarts, and bauxite volumes into China were expected to recover to pre-crisis levels in 2010, he said.

Rio Tinto Alcan was trending well in 2010 in terms of its key profit drivers, Mr Strachan said, and the unit was continuing to deliver cost improvements which would deliver stronger margins and returns.