Higher AIuminum Inventories Will Weigh On Prices March 14, 2008
(Dow Jones)--Aluminum prices are expected to weaken in the second half
of 2008 from current levels due to a greater surplus of the metal, HSBC Ltd.
forecast in a report Thursday.

  The report said prices are likely to fall to $2,450 a metric ton in the
second half of 2008 from $2,722/ton in the first half.

  The report estimates 2008 world production will rise 10% on year, leading to
a surplus of 608,000 tons, compared with 357,000 tons in 2007.

  Should the U.S. fall into recession, this surplus could grow by 50%, the
report added.

  In the near term, the uncertainty of recent supply disruptions due to power
failures in China and South Africa, together with a massive funds flow into the
commodities markets driven by inflation fears and US dollar weakness, will
maintain support for aluminum prices, HSBC said.

  However, as supply outages come back on line and greenfield capacity is
added, prices are likely to head lower, the report said.

  China's smelters are slowly recovering from the power outages of early
February. Even so, its aluminum production will be around 14.8 million tons
this year, up 17% from 2007, the report said.

  A number of greenfield projects will continue to ramp up production,
including an expected 300,000 tons-a-year increase at Alcoa's Fjardaal smelter
in Iceland and the startup of Vedanta Resources' 500,000 tons-a-year Jharsuguda
smelter in India.

  Easing alumina prices will be another factor driving smelters to increase
their production. Around 2.5-3.0 tons of alumina are needed to produce one ton
of aluminum.

  Chinese domestic alumina prices are now at $517/ton, down from $587/ton in
the beginning of the year.
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