Aluminium has been the worst performer among base metals in 2009 and investors will never forget the setback they suffered by putting their money in aluminium in the previous year. But, there is no guarantee that the scenario will remain the same in 2010.
But, like any other base metal, China holds the key to the aluminium prices. If Chinese demand soars the prices will climb up and India’s aluminium producers are set to cash in on that.
Long term prospect of aluminium is bright as China is still in the middle of completing urbanization and its metal intensive growth is likely to continue for many years to come.
About 65% of aluminium consumption is in the east and middle south China. The urbanization of North West and south west has great potential for aluminium demand in the coming years.
In the short term, overcapacity, plenty of inventories and reopening of smelters due to return to profitability will cap any upswing in aluminium prices.
However, the current average cost of the Chinese smelters is $2,000 and is rising further due to increase in bauxite and alumina and coal and power prices. These cost push factors provide a strong floor for aluminium prices.
LME aluminium is expected to trade between $2,000 to $2,400 in 2010.
Indian aluminium producers are best placed with captive bauxite, alumina, power and are insulated from across the board cost increases to a large extent.
In the pure aluminium space, the top company will be India’s Nalco. It is one of the cheapest aluminium producers and has volume upside of 30% in both aluminium and alumina due to brown field expansion.
Aluminum has been the worst performer among the base metals this year with returns close to 47% only.
Enam, a leading brokerage and research house has come out with its latest report on China’s aluminium sector and its outlook saying that aluminium demand in China is expected to grow by 15% in 2010 on the back of revival in construction and auto segments.
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