Aluminum smelter pipeline needs filling fast

Reuters reported that more primary aluminum smelter projects must make their way onto the drawing board soon to avert a looming gulf between supply and demand around the end of the decade.

Compounding the problem is the likely difficulty in opening new bauxite mines to feed those smelters due to the spread of resource nationalism and rising development costs. The prospect of supply shortages may seem remote with a current glut of stockpiled aluminum including the highly visible 4.5 million tonnes in London Metal Exchange warehouses.

Analysts and producers forecast based on known smelter and mine projects said that yet a shortfall of some 13 million tonnes looms by 2020 as demand surges to 70.0 million tonnes. Demand this year is seen at around 45.0 million tonnes.

Mr Steve Hodgson CEO of UC Rusal Sales at the recent CRU World Aluminum Conference in Barcelona said that "The elephant in the living room is whether production growth will keep pace with demand. If you look at aluminum growth in the next 5 to 7 years it's somewhat concentrated to China. There are pockets of growth elsewhere, but it seems to me that there isn't a broad-based production growth."

In top producer China there are concerns that growth could be shackled by power supply problems and plant closures. And there is a general lack of cheap power for the electricity hungry smelting process. Power accounts for more than one-third of aluminum production costs. If looming deficit predictions are borne out, aluminum prices could soar after years of lagging other metals.

Mr Jorge Vazquez senior VP of Harbor Intelligence's Aluminum Intel Unit in Texas said that "Our analysis tells us actual production in the world is not enough and that the tightness will feel more intense in coming years. Prices will need to increase much further in order to balance supply and demand."

A lack of new mines might also prove a stumbling block. Bauxite mines have tended to be easy to develop since aluminum is the most abundant metal in the Earth's crust. But miners generally are bumping up against more and more obstacles such as increasing resource nationalism and rising development and operating costs.