Aluminum Bubble Concerns Mount as Surplus May Add 29%

There’s a disconnect between the price and reality.” Barclays Capital forecasts that the global surplus in aluminum will increase 29 percent to 1.63 million metric tons next year as the biggest annual price increase since 1994 spurs producers to increase output. Emirates Aluminium Co. will start the world’s biggest smelter in April, and a plant part-owned by Norsk Hydro ASA in Qatar fires up next month. This year’s 32 percent rally in aluminum and the 46 percent jump in the S&P GSCI index of commodities is prompting concerns of a bubble in the making. China, the biggest aluminum producer, is at risk from an absence of consumer demand from trading partners, said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said on Nov. 13 that oil prices aren’t supported by market fundamentals. Investors are “chasing commodities” and there is a risk of bubbles emerging, Nouriel Roubini, the New York University professor who predicted the global financial crisis, said on Nov. 20 in a speech in Lisbon. China Starts Plants Aluminum, which settled at $2,037 in London trading today, will average $1,885 next year on the London Metal Exchange, according to the median in a Bloomberg New survey of 24 analysts. Stockpiles monitored by the LME almost doubled to 4.6 million tons this year, more than Western Europe’s production.

 A typical 747 uses about 66 tons of aluminum alloy, according to Boeing. The company has delivered at least 1,416 of the jets in its history. China will make 18 percent more metal next year, leading an 8.9 percent global expansion and contributing to a surplus equal to more than three months of North American demand, Barclays Capital estimates. Global output increased more than 12 percent since April, International Aluminium Institute data show. New smelters are coming on line. The Emirates Aluminium project, covering more than two square miles in Abu Dhabi, is scheduled to pour its first metal in April and will eventually make 1.4 million tons a year. The Qatalum project between Hydro and Qatar Petroleum will have an initial capacity of 585,000 tons, churning out metal from two buildings each longer than 10 football fields. Price Slump Five consecutive gains in average annual prices through 2007, the longest-ever winning streak on the LME, encouraged companies to expand supply. Last year’s 38.8 million tons was 67 percent more than in 1999, the aluminum institute’s data show.