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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Aluminum Markets Could Be In For A Price Rebound Soon

Things look lethargic across the commodities complex right now. With demand for gold, oil, and copper all having come under pressure of late.

But the market this week got some news of an unexpected surge in demand for one metal.

Aluminum. Related: Texas Weathers The Oil Slump Better Than Expected

As reported by Platts, major producer Norsk Hydro said that global demand for aluminum soared during the second quarter of 2015. Rising 15% as compared to the first quarter of the year, to 14.8 million tonnes.

The Q2 demand figures were also up on a year-on-year basis. Being 5% higher than the level seen during the second quarter of 2014.

Importantly, not all of this growth came from the key center of China. With demand from the world ex-China increasing by a healthy 5.8% during the quarter.

China itself saw strong growth, with consumption for the quarter up 7.1% as compared to the year-ago period. Related: Schlumberger Vs. Halliburton: Which Is The Better Buy Right Now?

Demand is reportedly being boosted by factors like substitution of aluminum for steel in the automotive industry. Which bodes well for consumption in this market over the coming months. Norsk Hydro is in fact projecting that aluminum demand should rise 5% for 2015 as a whole.

In terms of production and prices, the story appears to depend on location. With the future for Chinese producers appearing the most uncertain.

That's because even as demand is rising, production is increasing rapidly. Output across China was up 13.7% in the second quarter, as compared with Q2 2014. Related: Strategic Petroleum Reserve No Longer Key Part Of U.S. National Security

But beyond China, the market looks more steady. With total annualized production for this year projected at just 26.3 million tonnes -- almost 2 million tonnes less than annualized consumption, which is pegged at 28.2 million tonnes.

That suggests supply could be tight in markets like Europe and the U.S. Triggering a drawdown of stockpiles that have been a concern for buyers in this market.

Watch for a stabilization in prices, which have fallen to a five-year low below $0.80 per pound over the last few months. Possibly setting the stage for a rebound here.

Here's to being in demand,

Dave Forest

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