Last year, China consumed 18.7 percent of the world's aluminium. This year and next, China's consumption of aluminium - and most other raw materials - is set to rise sharply. A report from Merrill Lynch on Chinese snaffling of the world's limited amount of alumina, has boosted the share price outlook of corporate giants such as Alcoa and Alcan and confirmed fears that aluminium prices will rise by 20 percent through until 2006 (and then plummet)

Aluminium shortage pushes up prices

"Our forecast of the supply/demand balance shows the aluminum price story is one of short-term gain and long-term pain," said the survey by Merrill Lynch analysts.

Lack of alumina would constrain global aluminum output growth to six percent this year and five percent in 2005, while demand would surge 7.7 percent this year and 5.8 percent in 2005, said the report.

"We are increasing our aluminum price forecasts by nine percent in 2004 to 80 cents a pound and by 20 percent in 2005 to 90 cents a pound to reflect this tightening," said Merrill Lynch.

"By our estimates, new alumina supply from 2006 should allow aluminum supply growth of 8.5 percent in 2006 and 7.0 percent in 2007, creating a growing aluminum surplus and driving prices lower, back to trend levels."

"The Chinese are also managing a high-growth economy, which faces risks of commodity shortage that have been largely swept aside by the ‘just in time’ manufacturing culture in Western economies."

Ominously, the report also says: "We believe China has a national strategic requirement to secure and maintain availability of raw materials."

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This is a economics indicator report by Dr Marc Faber, a noted China watcher.

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