June 3 (Bloomberg) -- Record energy prices and power failures from China to South Africa are leading to mounting concerns that aluminum supplies will be curtailed within five years as production costs increase, futures prices show.

Aluminum for delivery in 2013 rose 5 percent in May on the London Metal Exchange, the most in three months. The $147 increase in the contacts to $3,110 a metric ton contrasts with a 0.9 percent gain in the cash market for immediate delivery.

Deutsche Bank AG raised its aluminum forecasts on March 28 from this year through 2012 by between 8 percent and 13 percent after oil surpassed $100 a barrel. Snowstorms and last month's earthquake curbed output in China, and South African power shortages delayed the start of a new smelter.

``Higher energy costs will lead to high prices for aluminum,'' said Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``Investors will be much better off buying longer-dated prices.''

Energy accounts for about 40 percent of the cost of aluminum smelting, compared with 30 percent last year, according to Barclays Capital. Supply will expand at 4.5 percent this year, compared with 12 percent in 2007, according to a May 12 forecast by Citigroup Inc.

About 560,000 tons of output was lost in China, the biggest aluminum-producing nation, according to estimates by London-based researcher CRU. The shortfall is greater than the 381,000 tons of surplus built up in the first quarter, according to the World Bureau of Metals Statistics.

Smelter Delay

Rio Tinto Group, the world's second-largest producer, delayed work on its $2.7 billion Coega smelter project in South Africa after the nation's state-run utility failed to guarantee power for the plant, the London-based company said May 29.

Saudi Arabian Mining Co. postponed the start of its aluminum venture with Rio Tinto until 2012 because the power plant that will supply the project won't be ready until the end of 2011, an official from the Saudi company said May 28.

Aluminum demand is expanding 6 percent annually, so delays increase concern about supply through 2010, Barclays said. Six new smelters need to be built each year to meet demand, based on the average plant being able to produce 500,000 tons annually, London-based analyst Gayle Berry said by phone May 30.

Prices for immediate delivery rose 0.3 percent to $2,884.25 in the past month because there's no shortage now. Stockpiles monitored by exchanges in London, New York and Shanghai jumped 46 percent in a year. Even after the snowstorms and earthquake, CRU forecasts Chinese production will advance 17 percent this year.

Price Forecasts

On average, Wall Street aluminum estimates remain below prices traded on the LME for delivery between next year and 2011. Cash prices will average $2,879, $2,875 and $2,659 a ton in 2009 through 2011, according to median of analyst estimates surveyed by Bloomberg. Prices for contracts to deliver in 2009 and beyond are now above $3,000 a ton.

``We continue to like the long-term prospects for aluminum but see no shortage of metal nor any sign of an imminent slowdown in Chinese production,'' John Reade, a metals strategist at UBS AG in London, wrote in a report. ``It's hard to put together a convincing argument for any imminent scarcity of aluminum.''

The price at which smelters begin to be unprofitable is in the ``high $2,000s'' a ton, Richard Evans, chief executive officer of Rio Tinto's aluminum unit, said May 14. Aluminum for delivery in three months closed at $2,929.50 yesterday.

LME options indicate prices are expected to rise to $3,200 or more by December. Almost one-third of the call options, giving holders the right to buy, are for prices at $3,500.

The copper market is showing similar concerns. Spot prices fell 7.3 percent last month as a mining strike in Chile ended, while metal for delivery 63 months from now, the LME's longest delivery term, rallied 4.1 percent.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

Last Updated: June 3, 2008 04:40 EDT