It will be 18 months to 2 years before there is a substantial decline in the LME aluminum inventories, according to Novelis, Inc. president and chief operating officer Phil Martens, purely because people are not going to dump material on the market.
Speculation that the recent narrow backwardation on the light metals cash-to-three month spread would lead to hundreds of thousand of tones of metal being released from the financing deals after months of contango trading was overdone, Martens said. People talked about the backwardation but the effect was very minimal. It is almost not relevant.
The financing deals have removed a hefty tonnage of aluminum from the market helping boost US and European premiums and leaving consumers struggling to secure supply.
Phil Martens does not believe there will be a substantial move in aluminum prices next year, despite strong demand forecasts and the launch of a possible exchange-traded fund (EFT) in the first quarter. But he feels physical demand for aluminum products will be strong in 2011.
Excerpts from American Metal Market. September 24th, 2010
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