Aluminium traders see cost upswing until 2013

Aluminium for delivery in 2013 rose 5 per cent in May on the London Metal Exchange (LME), the most in three months. The $147 increase in the contracts to $3,110 a metric tonne contrasts with a 0.9 per cent gain in the cash market for immediate delivery.

Deutsche Bank AG raised its aluminium forecasts on March 28 from this year through 2012 by between 8 per cent and 13 per cent after oil surpassed $100 a barrel. Snowstorms and last month's earthquake curbed output in China, and South African power shortages delayed the start of a new smelter.

Energy accounts for about 40 per cent of the cost of aluminium smelting, compared with 30 per cent last year, according to Barclays Capital. Supply will expand at 4.5 per cent this year, compared with 12 per cent in 2007, according to a May 12 forecast by Citigroup.

About 560,000 tonnes of output was lost in China, the biggest producer of the metal, according to estimates by London-based researcher CRU..

Rio Tinto Group, the world's second-largest producer, delayed work on its $2.7 billion Coega smelter project in South Africa after the nation's state-run utility failed to guarantee power for the

Aluminium demand is expanding 6 per cent annually, so delays increase concern about supply through 2010, Barclays said. Six new smelters need to be built each year to meet demand, based on the average plant being able to produce 500,000 tonnes annually, London-based analyst Gayle Berry said.

Prices for immediate delivery rose 0.3 per cent to $2,884.25 in the past month because there is no shortage now. Stockpiles monitored by exchanges in London, New York and Shanghai jumped 46 per cent in a year. Even after the snowstorms and earthquake, CRU forecasts Chinese production will advance 17 per cent this year.