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Aluminium

After years of chronic surplus, the global aluminium industry is going through a period of substantial change. In Russia and the west, producers continue to curtail unprofitable smelting capacity. In China, the growing influence of the price mechanism is likely to limit overcapacity in the aluminium industry. In Indonesia, the ban on exports of bauxite will deprive Chinese alumina producers of their main source of raw material. These three factors are expected to result in a further slowdown in global output growth. With demand for aluminium remaining strong, this is expected to push the market into a deficit for the first time since 2006, which should help to support a steady improvement in aluminium prices over the coming years.

In our central scenario, an improvement in the LME aluminium price is expected to be a relatively slow process at first. Adjustments will come, initially, in terms of a gradual decline in physical premiums and a move from contangoContango - 
A condition in which distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity. The opposite of backwardation.  towards a flatter forward price curve. Only once it becomes clear that the market has moved into a substantial deficit will prices be able to move materially higher, given that there may be as much as 9 million tonnes of aluminium currently held in global stockpiles. We are therefore forecasting average LME aluminium prices of $1,880/tonne in 2014, rising to an average of $2,075/tonne in 2015.

from metal.com