Global Cooling (again)

[Saniflush]

Got this from one of suppliers concerning the LME (london metal exchange) and where the market is going.  Damn weather in China.

Commodities   
Global power shortages could push aluminium into a deficit in 2008     
Power shortages in China and South Africa are threatening to significantly tighten the market and push prices even higher.

The situation in China has gone from bad to worse, with a severe snow storm creating a major power supply problem. The main issue seems to be the availability of coal to power stations. Coal is in short supply because of various issues including the shut down of small coal mines and a slowdown in deliveries due to the weather. China also suffered from a diesel fuel shortage in Nov/Dec (where trucks were forced to queue for long periods to obtain fuel), which reduce the power plants’ coal inventory leading into this storm. The majority of coal is delivered by truck particularly so any disruption to the coal industry will have a direct and immediate effect on the power industry. But even power plants that have coal are finding it difficult or even impossible to deliver power to users. The heavy snow fall is actually bringing down power lines across the country.

We estimate that around 1.3 million tonnes of capacity in China is currently shut down. This equates to approximately 9% of forecast supply in China in 2008 or 3.2% of global output. With the power shortage the result predominantly of bad weather, we expect the shortage to be relatively short lived. Based on a two month long power shortage, China’s aluminium output could fall by 200kt this year.

In South Africa, similar power shortages brought the mining industry to a stand still. Eskom, which produces 95% of South Africa's electricity, announced last week that it was unable to guarantee power to industrial users such as mining companies. This was due to a variety of issues including equipment failures and problems with coal supply. This prompted most miners with underground operations to completely shut down their South African operations on safety grounds.

BHP, which has three aluminium smelters in the region with a total capacity of 1.5 million tonnes, was able to keep its smelters operating although at a reduced capacity. If you assume output was cut in half over the week long power shortage, only 28kt (or 1.5% of African supply) would have been lost. But South Africa’s power problems appear to be more structural and thus we expect to see power shortages (of some degree) affecting the industry for some time. In fact, BHP and other heavy users have been asked to reduce their electricity usage by a minimum 10%. This could cut African supply by up to 150kt this year.

Therefore, the power issues in both China and South Arica could remove up to 350kt of aluminium from the market in 2008. With our forecast market balance showing a small 84kt surplus, this would push the market into a sizeable deficit.

We have turned increasingly bullish on aluminium over the past few months, particularly in the medium to long term based on rising energy and raw material costs. This latest supply side issue threatens to tighten the spot market, and push cash prices up even higher.

[Tarheel]

It is getting so that Global Climate Change is becoming an convenient excuse for everything...of course it is the fault of the evil and insidious Bush Administration pumping out all of those greenhouse gases (never mind the coal plants in China, India, and SE Asia).

Hillary, Obama, or Juan McCain will fix that problem though (depending on who wins the election).

[Thrilla]

I'll do what I can by making the permanent switch to beer bottles