RPT-Supply glut will keep pressure on aluminium prices -BHP Billiton

Tue Feb 18, 2014 4:12pm EST

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LONDON Feb 18 (Reuters) - The aluminium market will remain tough for producers in the forseeable future as high inventories weigh on prices and idled capacity is poised to resume output and cap any price rises, BHP Billiton's marketing chief said.

More than five million tonnes of aluminium are stored in warehouses approved by the London Metal Exchange (LME), the world's largest base metals marketplace, and much more is kept outside these warehouses.

Smelter shutdowns and metal being locked up in financing deals have squeezed the availability of aluminium in the spot market, however, and have pushed premiums to release aluminium from storage to around record levels.

This effect has been partially offset by weaker benchmark prices on the LME and has given only little relief to producers, said BHP Billiton's President of Health and Safety, Marketing and Technology, Mike Henry.

"While you have a small increase in overall prices it hasn't really been substantial enough to move the needle. You have got 5.4 million tonnes sitting in LME warehouses, a lot more aluminium sitting outside the warehouses and that's an industry that will continue to be challenged for the foreseeable future," Henry said in a press briefing in London.

"You have got a lot more days of inventory in aluminium that you would have for many other commodities. And if prices move up, there is a lot of idle capacity that can be brought back to the market, which would likely cap any sustained upside in prices."

The world's largest miner said it was looking to simplify its portfolio.

While it will hold on to its core divisions: iron ore, petroleum, copper and coal, it said it might divest some non-core assets such as aluminium, nickel and manganese.

The global miner topped market forecasts with a 31 percent rise in first-half profit on Tuesday and hinted it may launch a share buyback in August, despite giving a cautious outlook on Chinese growth.

Henry said nickel had been a difficult market and although prices of the stainless steel ingredient had been boosted by a ban on mineral exports from Indonesia, it was hard to predict how long this support would last.

Iron ore, which makes up for about half of BHP's profits, is seeing its supply and demand picture turn negative too.

Henry said he expected additional cheap supply to come on stream in 2014, mostly from the major producers in Australia, at about 100 million tonnes, outstripping demand growth of about 60 million tonnes.

"That suggests you should see some of the high cost Chinese supply being pushed out at the top of the cost curve and should expect prices coming down," he said adding that the decline would likely happen in the second half of the year.

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