Oleg Deripaska bucks trend and predicts upturn in the aluminium sector

Prices, he had to acknowledge, have not kept up because of “too much capacity” among producers.

As they have turned out more of the metal, the latest figures from the International Aluminium Institute show that global production in December hit an all-time record of 45.55m tonnes, on an annualised basis.

Mr Deripaska said: “We had a time when the high prices in aluminium attracted so many players into the industry and that’s why they built a lot of capacity ... they had pressure from the banks to keep this going.”

In response to this excess of supply, he said, Rusal has completed an “investment programme, we restructured a lot of our capacity, we mothballed, we optimised output, we carried out very rational output planning for the next three years.”

Still, he would argue that the activity of financial players in the market masks a tighter supply of the metal. People who want to buy it in physical form have to pay a “ridiculous premium, which we have not seen in 20 years”, he noted.

Certainly, the complaints from users about the queues to get metal out of warehouses – often controlled by the banks active in the market – are legion.

Simply, there is money to be made for some from locking the metal up to collect dust in giant sheds. In a typical arrangement, a bank or commodity trader buys metal, sells it forward at a profit and strikes a warehouse deal to store it cheaply away from the market.

“If you write off the metal tied into different warehouse and financial deals, you will see there is no metal available,” Mr Deripaska said. “We have a very narrow [supply-demand] balance which in two years will turn into a deficit.

“This stock, which seems so high and creates this wrong analysis, is actually not available.

“This year the price will move much more higher than people predict. I don’t want to guess [where], I just try to indicate very clearly ... that the price mechanism is very artificial.”

Meanwhile, the actual consumers of the metal, he said, have become very cautious financially, avoiding hedging – entering into trades to protect their exposure – around their own activities.

“In reality they expose themselves to higher risk. In ’13, ’14, [the price] will be significantly higher,” he said. “This is something that we try to warn our customers: go to a long-term contract, try to define a hedging strategy. Don’t look at the current forward [price] curve which is highly affected by financial players.”

How far is this a fair analysis? After all, you would not expect a metals magnate to talk down his price.

Still, if not all agree with his forecast of a price climb, the rest of what he says is echoed across the market – which analysts at HSBC sum up as having “a moderate surplus, but significant excess capacity and excess inventory”.

Don’t underestimate the impact financial players can have in a commodity market, in other words. ER

With stock markets soaring and risk appetite increasing, Credit Suisse has now turned even more bearish on gold.

On Friday, analysts at the investment bank declared that this year is “the beginning of the end of an era” for gold bugs.

At the start of January, the Swiss broker cut its 2013 price target on the metal by 5pc to $1,740 an ounce. Analyst Tom Kendall declared that “the gold cycle is likely to peak this year” as he predicted a fall starting in the third quarter.

Mr Kendall now believes that gold prices will start falling sooner than he expected just one month ago. “With global growth now improving and inflation expectations contained, we feel that downside risks are building for gold,” Mr Kendall argued. “It looks increasingly likely that the 2011 high will prove to have been the peak for the dollar gold price in this cycle, and that the 'beginning of the end’ of the current golden era comes sooner than the third quarter we forecast in January.”

However, US billionaire investor Paul Singer disagrees. “We envision an environment, perhaps not too far away, in which the need to own something 'real’ will be transcendent in investors’ minds, and the present lack of investor sponsorship of gold will bring forth a sharp rally,” Elliott Management, his $21bn (£13bn) hedge fund said in its fourth quarter report. GW

Oil prices gained last week with the price of Brent crude hitting its highest level since October at around $117 a barrel, “reflecting renewed optimism about economic growth, US dollar weakness and the Fed’s pledge to maintain its asset purchase program,” HSBC commodity analyst Michael Lewis said.

Joe Conlan, an energy analyst at energy consultants Inenco, said that last week’s surprise fall in US GDP is not a worry for oil bulls. “When you look behind the data, especially at the 22pc drop in military spending and the US fiscal cliff, it should not come as a shock or a cause for alarm,” Mr Conlan said. He thinks Brent crude prices could hit $120 a barrel this week. GW

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Rio Tinto chief resigns following surprise writedown on aluminium

And the situation did not improve last year, according to Rio, as it explained the latest blot on its balance sheet.

"The further deterioration in aluminium market conditions in 2012, together with strong currencies in certain regions and high energy and raw material costs, has had a negative impact on the current market values in the aluminium industry," it said.

Don't hold your breath for an improvement any time soon. Fitch, the credit rating agency, is not optimistic. Rio's latest writedown only supports its view that "weak pricing and net market surpluses are likely to continue for at least the next two years, pressuring producer profitability".

Between 30pc and 50pc of the metal's producers are failing to break even, it estimates, as high stock levels keep official prices in check and cheap electricity becomes more scarce.

It also notes that more than 5m tonnes of aluminium is held in official London Metal Exchange warehouses and reckons that probably the same volume is held in unofficial storage. That points to a heavy surplus of the metal.

In response to the terrible conditions, producers have cut back, but not enough. People do pay high premiums in some markets to actually lay their hands on the metal, since up to 70pc of global stocks are tied up in financial transactions, Fitch notes.

However, a particular issue for producers elsewhere is that in China, political will and the high premiums paid locally for aluminium have helped many smelters stay in operation, putting pressure on rivals.

And as for the cheerier sentiment in the wider metals market?

Overall, last year was not great for commodities. Investors only saw profits in passive, long-only investments in the grains and, to a certain extent, the precious metals sectors, notes Ole Hansen, head of commodity strategy at Saxo Bank. "Investors will look towards 2013 hoping for better opportunities to emerge than during 2012," he says.

And, generally, it seems the market feels the global economic environment is improving. Last year was "sub-trend" for commodities as companies let their stocks of raw materials run down, say analysts at Macquarie, but they think 2013 will be a year of recovery – albeit "subdued" for commodity markets.

"An end to the destock cycle which weighed on industrial commodities over the past six months should help bolster apparent demand," they argue.

However, that looks unlikely to get the aluminium market out of the doldrums. Barclays analysts think that while sentiment over metals demand has improved, it may be overstated.

"The fundamentals for most metals do not support sustained big increases in prices, in our view. Most base metals are in surplus this year, stocks are comfortable and the supply picture is ample, though not without risk."

They conclude, "for many metals, we would view this as an opportunity to sell short, particularly when price action starts to look a bit frothy – as aluminium is already."

Wheat futures rose sharply last week as it became clear the drought in the US Midwest would continue, raising concerns about this year's crop.

The drought will probably persist over the next three months because the dry earth isn't getting soaked by winter storms, the US Climate Prediction Center said on Thursday.

"On the new wheat crop, traders remain concerned about the weather as analysts believe as much as 30pc of Kansas's wheat crop was destroyed after sprouting on dry land," Arnaud Saulais, a commodity broker told Bloomberg.

Soybean prices also jumped almost 5pc over the week.

Last week, Germany's central bank unveiled plans to repatriate gold held in foreign vaults.

The Bundesbank will bring home 674 tonnes of their total 3,391 metric tonne gold reserves from vaults in Paris and New York to restore public confidence in the safety of Germany's gold reserves.

"We view the repatriation and upgrade of old gold by the Western World's central banks as a further positive in gold's evolution as a legitimate form of money," Deutsche Bank analyst Daniel Brebner said.

"While this is unlikely to have any impact on the near-term price performance of the metal, it could have important longer-term implications."

Over the past several years central banks have moved from being net sellers of gold to net buyers. Indeed, central bank buying is central to the case for gold hitting $1,900 in the first half of this year, according to precious metals advocate GFMS.

Central banks, known as the official sector, added the most gold to reserves in 48 years in 2012 and are expected to buy another 280 tonnes in the first half.

Official sector buying of gold rose 17pc in 2012 on a year-on-year basis to 536 tonnes.

China is expected to be a major buyer, increasing the proportion of its reserves held in gold. China currently holds $1.17 trillion of US Treasury bills in its reserves.

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