Power shortages may push aluminum to record high

By Pratima Desai - Analysis

LONDON (Reuters) - Power shortages in China and South Africa may disrupt aluminum output again in the next few months, pushing the price of the metal to record highs.

Energy-intensive aluminum production was severely curtailed earlier this year because of power outages in both countries, helping prices on the London Metal Exchange (LME) spike through the key $3,000 MAL3 a tonne level.

Electricity supplies are now more stable and prices have fallen back to around $2,900 a tonne, but the risks of further outages are rising as seasons change.

"If (aluminum) supply disruptions emerge to a large enough degree and for long enough then the potential for a price spike is very real," said Gayle Berry, analyst at Barclays Capital.

The Chinese summer will mean greater use of air conditioners, while the winter season in South Africa means higher heating needs. Higher retail demand for electricity could lead to cutbacks for industry.

Analysts say that could trigger a price surge to and possibly beyond the record high of $3,310 a tonne set in May 2006 for the metal widely used in the transport, power and packaging industries.

"Any supply disruptions in today's globally tight supply situation may have a positive effect on the aluminum price," said Eigil Madsen, vice president of strategy and business development at Norwegian aluminum group Norsk Hydro (NHY.OL: Quote, Profile, Research, Stock Buzz).

"Reports say that coal stocks are generally low in China and that the summer period with air conditioning and high power consumption may lead to further power supply disruptions."