Contradicting a lot of other aluminum industry watchers, Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) analysts see aluminum prices pushing much higher based on tightening supplies.
Citigroup goes way out on the limb, saying aluminum prices will skyrocket to $2,500 a metric ton in 2011, while general consensus is aluminum prices will stay between $1,900 to $2,100 through that period of time.
Morgan Stanley isn't that optimistic, but still more optimistic than most others, as they see aluminum surging as high as $2,200 by the end of 2010, and reaching $2,295 in 2011.
The reason for the discrepancy in aluminum price outlook is based on how one interprets the impact of financial arrangements and how much of the high levels of supply will be released into the markets.
Those with lower price views believe there is too much aluminum stockpiled for the agreements in place to hinder the supply that much, which will keep prices lower, while those with the higher outlook believe those agreements and aluminum held by investors will limit the amount of aluminum to be released into the market, even with the near-record inventory.
There is also the aluminum ETFs which are creating an entirely new aluminum market to consider, but it's not clear at this time how that will impact prices short term, although they are sure to long term, as demand grows and battles over who acquires the aluminum supply emerge.
Higher aluminum prices don't guarantee increasing demand though, or necessarily more profits for aluminum suppliers, because if prices indeed go much higher than expected, and macro economic conditions remain the same, companies will cut back on buying aluminum, prices will fall again, and we'll be back to where we are now.
I would be surprised to see the aluminum price increase to the levels Citigroup and Morgan Stanley are projecting, as there seems to be more than enough aluminum supply available even with the physical aluminum that is tied up and not available to the market.
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