Aluminium prices have fallen over 10% since late January, which originally saw prices spike above $2,600 per tonne as the ending of Covid-19 restrictions in China saw demand for the metal rise.
Prior to this aluminium prices had dropped about 40% below record levels in late November 2022 due to weak demand outlook for the industrial metal.
Aluminium is a versatile, lightweight, corrosion-resistant and recyclable metal that has numerous use cases in construction, automobile, aerospace, packaging, electronics and many other industries.
It is the third most abundant element in the Earth’s crust, after oxygen and silicon.
According to Russian-based UC Rusal, one of the largest aluminium-producing companies in the world, construction and transportation make up over 50% of aluminium consumption by industry.
The shift towards electric vehicles has further increased demand for the metal. Aluminium is used in structural body frames and battery packs to keep electric cars light and improve battery efficiency.
Because the metal is easy to recycle, 75% of all aluminium ever produced being still in use, according to Norwegian aluminium company Norsk Hyrdo.
Environment-friendly initiatives by companies like Apple (AAPL) have prompted the increased use of recycled aluminium, alongside recycled tungsten, rare earths and cobalt.
Another factor is that producing aluminium from ore is an expensive, energy-intensive process. The cost of fuel, especially coal, which is still used extensively in major aluminium-producing countries such as China and India, influences the aluminium price forecast.
Aluminium companies such as Indian-based Hindalco have acquired coal mines to support aluminium production.
How is aluminium produced? Bauxite is the raw material used to produce the world’s second most-consumed metal. After bauxite is mined and ground, aluminium oxide (alumina) is extracted from the ore through refining.
The metal is then extracted from alumina via electrolytic reduction, which is highly power-intensive. Molten aluminium is then cast into extrusion ingots, sheet ingots and foundry alloys depending on its use.
Aluminium prices rebounded with strength in 2021 amid the reopening of economies following Covid-19 lockdowns. Developments in China, which accounted for half of global aluminium production in 2020, dominated the price action for the industrial metal throughout the year.
By October 2021, aluminium had surged to 13-year highs as China’s policy to “aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060” brought greenhouse gas-emitting smelters to a grinding halt.
The aluminium supply chain was further disrupted by recurring power shortages in China as coal plants shut down to meet state-set energy consumption targets.
Aluminium prices eased after the October 2021 peak as weakened coal prices helped lower production costs. The falls were short-lived as prices surged in late December, eclipsing the highs hit in October.
Data from Capital.com showed that aluminium spot prices surged to an all-time high of over $4,000 per tonne on the back of supply concerns following the Russia-Ukraine war.
Commodity prices spiked as the West announced sanctions on Russian imports. Even though direct sanctions on aluminium were not introduced, several corporations and nations have refused to do business with Russia, cutting out supply from the world’s second largest primary aluminium producer.
According to the International Aluminium Institute, Russia accounted for 6% of global aluminium output in 2021.
In 2022, the focus shifted from supply to demand. A rise in Covid cases in China and the country’s subsequent nationwide lockdowns brought its industrial centres to a standstill. Meanwhile, aggressive interest rate hikes from the US Federal Reserve (Fed) pushed the US dollar index (DXY) to a near 20-year high, denting commodity demand due to higher foreign exchange costs.
Aluminium prices dropped nearly 50% from record highs to hit a 19-month low of $2,076 per tonne by 28 September 2022. However, it saw a rebound from its September lows as prices rose over 14% in the next two months and ended the year at $2,405.
The following the ending of China’s zero-Covid policy in December, Chinese output of aluminium hit record levels. In January 2023, aluminium prices rose steadily, reaching a seven-month high of $2,638 on 25 January.
However, the price later corrected and by late March it has shed mosts of its gains, reaching $2,266.50 on 21 March. This came as the US decided impose 200% tariffs on Russian metal starting on 10 March, effectively imposing a ban on Russian aluminium imports.
As of 24 April, the price of aluminium stood at $2,383.50.
London-based commodity investment firm Sucden Financial said in its first-quarter metals report:
“The rally we saw in Q4 2022 and the first weeks of 2023 has stalled, as China’s re-opening has not triggered a large increase in consumption and is a services play, as well as the Fed remaining hawkish on rates. The dollar has firmed, causing metals to weaken, highlighting the fragility of move higher. Spreads are in contango, Chinese prices are mostly in discount, and weaker premiums suggests a cautious market.”
For aluminium, the commodity investment house said:
“Aluminium benefitted by the year-end from the Chinese government announcing the removal of lockdown restrictions. The sentiment has continued into the start of this year, but a traditionally quiet Chinese New Year season has meant prices found support at $2,350/t levels. Growing domestic stockpiles in China and weaker overseas demand meant that consumers avoided committing to long-term contracts for now, with bulls waiting for another quarter before joining the trade.”
With regards to aluminium price predictions for 2023, Shanghai Metals Market (SMM) seemingly predicted more volatility in the metals future, stating that the price showed “no signs of stabilising”.
Meanwhile, Fitch Solutions has lowered its 2023 aluminium spot price forecast from $2,700 to $2,600 per tonne.
The research firm said “supply constraints will anchor prices at their current levels” as aluminium production suffers in Europe due to high energy prices, in Russia due to sanction-related concerns and in China due to a government-implemented hard cap on smelting capacity.
Looking to the future, there are many tailwinds for aluminium demand due to the metal’s unique properties, which range from its light weight to recyclability.
US president Joe Biden’s $1.2trn infrastructure bill, passed late last year, has allocated $550bn to fund bridges, roads and energy systems over the next five years.
“We are excited to see significant investments in public transit, electric vehicles, and charging infrastructure included in the bill,” said Norsk Hydro’s VP of finance and strategy Michael Stier in an interview with Aluminium Insider.
“All of these pieces of infrastructure will rely heavily on aluminium as a means to reduce vehicle weight, improve efficiency, and enable clever design solutions. We are particularly excited to see new developments within electric vehicle chassis design and battery systems in combination with the phase-change developments needed to normalise charging technology and infrastructure in North America.”
According to Fitch Solution’s aluminium price forecast for 2025, the metal was expected to trade at $3,000 per tonne. Fitch’s aluminium price forecast for 2030 saw the metal trading at $3,300 per tonne.
“Going forward, we expect aluminium prices to remain elevated in the coming years, as aluminium demand is supported by the accelerating shift to a green economy,” Fitch Solutions said in its long-term aluminium price forecast.
The Westpac Market Outlook November 2022 report expected aluminium to trade at $2,200 per tonne in December 2022. The bank’s aluminum price forecast for 2023 saw the metal trading within a range of $2,150 per tonne and $2,500 per tonne during the year. It did not give any aluminium price forecast for 2025 and 2030.
Finally, Sucden Financial said in its quarterly metals report that any doveish remarks from the Federal Reserve regarding the monetary tigthening cycle “will cause a sell-off in the dollar, giving rise to metals prices.”
"If Chinese demand returns and the dollar weakens, this could present significant volatility and price rises, compounded inflationary pressures," added Sucden Financial.
Note that analysts’ predictions can be wrong. Aluminium price forecasts shouldn’t be used as substitutes for your own research. Always conduct your own diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals.
Keep in mind that past performance doesn’t guarantee future returns, and never invest or trade money you cannot afford to lose.
Aluminium is a versatile, lightweight, corrosion-resistant and recyclable metal that has numerous use cases in construction, automobile, aerospace, packaging, electronics, among others. Whether the industrial metal is a suitable investment for you depends on your risk tolerance, portfolio size and goals and experience in the commodity market.
Always conduct your own due diligence before investing. Keep in mind that past performance doesn’t guarantee future returns, and never invest or trade money you cannot afford to lose.
The Westpac Market Outlook November 2022 report expected aluminium to trade at $2,200 per tonne in December 2022. The bank’s aluminum price forecast for 2023 saw the metal trading within a range of $2,150 per tonne and $2,500 per tonne during the year.
Note however that analysts’ predictions can be wrong and shouldn’t be used as a substitute for your own research.
Aluminium has unique properties that make it a key ingredient in electric vehicle manufacturing. A big percentage of aluminium usage is in construction and automotive industries. However, aluminium production is a highly energy-intensive process. It is also the third most abundant element in the Earth’s crust, after oxygen and silicon.
Whether the industrial metal is a suitable investment for you depends on your risk tolerance, portfolio size and goals and experience in the commodity market. Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose.