WASHINGTON - The financial advisory firm, Merrill Lynch, announced on March 11 that there will be a global shortage in aluminum this and next year. The shortage reflects increasing demand for aluminum in China and insufficient supplies of bauxite (aluminum ore). As a result, the price of aluminum could increase 9 percent this year and 20 percent next year.

Merrill Lynch’s report on the aluminum shortage has pushed analysts to re-evaluate the stocks of the aluminum production industry, largely increasing their predictions of stock prices of the leading aluminum companies such as Alcoa and Alcan.

Last year China consumed 18.7 percent of the world’s aluminum and contributed 19.7 percent in to aluminum production. According to the report, the production capacity of aluminum refineries in China is expanding quickly. However, limited supplies of bauxite will inhibit China’s future production.

Limited by the supply of the bauxite, Merrill Lynch predicted that the global aluminum production will increase 6 percent in 2004 and 5 percent in 2005. However, the demand is predicted to increase 7.7 percent this year and 5.8 percent next year. In 2004, the aluminum supply will be 223 thousand tons less than demand at current prices, and the number will increase to 505 thousand tons next year.
Merrill Lynch predicts aluminum prices in 2004 will increase by 9 percent, to US$0.80 per pound and by 20 percent to US$0.90 per pound in 2005.

However, the report predicted that the aluminum production capacity will increase 8.5 percent in 2006 and 7 percent in 2007. The increasing supply of aluminum will push the price down to normal levels. The report predicted the aluminum price in 2007 will go back to 76 cent per pound and the long-term price level will be at about 68 cents.

Merrill Lynch predicted that even with limited supply of bauxite, the aluminum production in China this year can still increase 19 percent and reach 6.6 million tons. In 2005, the increase will be 12 percent to 7.4 million tons. The report predicted that within the few years after 2005, the production capacity of the aluminum refineries in China will surpass the demand predicted.

The China Business Post reported on the 12th that the aluminum production in China is still increasing despite the increase in aluminum price, insufficient bauxite supply and power shortage in certain areas. Several provinces including Henan have greatly increased their aluminum production and are no longer complying with Beijing’s policy trying to slow down the aluminum production based on the environmental protection.