The world aluminium market was heading for a 200,000-tonne deficit this year and in 2009 as coal supplies turn scarce and producers are forced to cut output, banking group UBS said on Monday.

We expect market fundamentals to continue to tighten as global constraints on energy supply grow and impinge on the aluminium industry, UBS said in a report on the sector.

Prices for the metal should respond on the upside to the deficits, averaging $3,150 a tonne, or $1.43 a pound, this year and $3,525 a tonne, or $1.60 a pound, in 2009, it said.

Aluminium averaged $2,640 a tonne, or $1.20 a pound, in 2007.

Three-month London Metal Exchange-traded aluminium stood at $3,115 a tonne early on Monday. The contract hit a record $3,310 a tonne in May 2006.

Western world unwrought aluminium stocks rose to 1.67 million tonnes at the end of May 2008 versus 1.58 million in April, International Aluminium Institute data released last week showed. [nL26190079].

Due to higher coal prices the production cost of aluminium has increased, forcing smaller smelters operating at close to marginal costs to close, according to UBS.

As a measure to provide more power for civilian use, authorities in some countries have curtailed power to energy-intensive industrial users like aluminium smelters, making less aluminium available to the market.

BHP Billiton Ltd announced it was reducing its aluminium production at three African smelters by 10 percent, putting the total annual output loss at just over 120,000 tonnes.

Rio Tinto Ltd/Plc has also cut output 10 percent, or 35,000 tonnes, at its Tiwai Point smelter in New Zealand to reduce demand on the national electricity grid. [ID:nSYD207493]

Thermal coal contract prices are up more than 100 percent to $125 a tonne, while spot prices at Newcastle port in Australia and Richards Bay in South Africa remain volatile with prices at $163 a tonne and $146 a tonne FOB respectively for the week ending June 20, UBS noted.

World production of 37.85 million tonnes of primary aluminium in 2007, compared with 37.23 tonnes consumed, according to the Australian Bureau of Agricultural and Resource Economics. (Reporting by James Regan; Editing by James Thornhill)

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