Awaiting its surge.

While other metals have surged in price as an economic rebound takes hold, aluminum has thus far drifted only slightly upward. A forecast presented at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodity Roundtables in September sees aluminum sticking to its moderate gains during the next couple of years, rather than leaping forward.

Speaking to attendees of the Aluminum Roundtable in Rosemont, Ill., Neil Buxton of GFMS Metals Consulting, London, said, "We expect accelerating and above-trend growth" in aluminum demand for the fourth quarter of 2003 and the first two quarters of 2004, helping to eliminate some of the built-up inventories.

Buxton predicted 2004 LME primary aluminum pricing averaging 68 cents per pound in 2004 and 73 cents per pound in 2005. He remarked that the 2005 pricing "could represent a cyclical peak" in the price of the metal.

Among the drivers of this demand is the long-awaited rebound of the Japanese economy as well as an apparent recovery in the U.S.

Buxton also noted that one reason aluminum pricing has not surged the way copper or ferrous scrap pricing has is because China is close to a "zero sum game" in the aluminum market. "It's the net trade for that country that has an effect on prices," he remarked, noting that while China is a net importer of 5 percent of the world's copper and nickel, it is actually a net exporter of 1.8 percent of the world's finished aluminum.

But because the country is now the largest consumer of aluminum, with consumption continuing to grow at a 14 percent annual rate, its behavior will continue to affect the market.

Alan Dick of Commonwealth Aluminum Corp., Louisville, Ky., noted that China's appetite for aluminum scrap has skyrocketed since 2001, with 200,000 tons of the commodity heading into China in 2002.

That demand for scrap at a time when primary prices have been toward the lower end of the scale has provided difficult circumstances for aluminum-scrap-consuming companies like Commonwealth and Wabash Alloys, Wabash, Ind.

Wabash Alloys Vice President Joe Rosengarten pointed to exporters buying at high prices combined with reduced U.S. generation of industrial scrap as factors contributing to the disappearance of margins for secondary smelters. "There are currently no spreads in this business," he declared.

Alan Alpert of Alpert & Alpert Iron & Metal Inc., Los Angeles, also pointed to tight scrap supply and competitive overseas buying "for scrap that doesn't exist" as key current market factors.

Reasons for aluminum pricing optimism cited by Alpert were similar to those mentioned by Buxton--an apparent recovery in the U.S. and Japanese economies and solid demand from China, South Korea, India and other scrap importers.

While Dick and Rosengarten endorsed an increased use of the LME NASAAC contract for some scrap trading, Michael Lion of the Sims Group, Malibu, Calif., has been trying to gauge scrap's price relationship with LME primary aluminum.

His conclusion: "I'm skeptical. The connection between scrap [pricing] and the LME is tentative."

Average U.S. Refiners Buying
Prices for No.2 Copper Scrap

Sept02   55.68 cents
Oct      56.70 cents
Nov      60.50 cents
Dec      61.33 cents
Jan03    62.38 cents
Feb      64.11 cents
Mar      64.26 cents
April    61.80 cents
May      65.43 cents
June     67.36 cents
July     68.23 cents
Aug      69.43 cents
Sept     72.67 cents

Source: American Metal Market
(per pound, monthly average)

Note: Table made from bar graph.