Aluminum and other key raw materials, including crude oil, natural gas and nickel, have been hot commodities this year as supply struggles to keep pace with demand amid the global economic downturn. The world recovered strongly after the Covid-19 pandemic. This has left some key industrial commodities in a situation where traders and consumers are willing to raise their bids for spot shipments.
The price of aluminum on the London Metal Exchange (LME) late on February 10 was at $3,333 a tonne, its highest level in nearly 14 years, and not far from its all-time high of $3,375 reached on July 2008.
Aluminum prices have hit a record high
Since the beginning of 2022, the price of aluminum has increased by 15%, becoming a 'bright star' in the base metal market - where the capital of all commodities this year has increased.
The reason aluminum prices are at record highs is due to supply concerns as widespread power shortages limit output in both China and Europe. The West's hardline stance towards Russia on Ukraine has raised concerns that one of the world's largest aluminum producers could be sanctioned, further driving up prices for the light metal.
Data from the LME shows that the amount of aluminum in the stockpiles of this exchange increased by 119,000 tons. This may ease the bullish 'fire', but only causes the price to drop slightly to $3,270/ton to be ready to rise again.
The higher aluminum prices and the spread between the physical aluminum spot price and the futures contract suggest that total stocks have fallen sharply, especially outside of Asia. The increase in aluminum prices despite the information that aluminum inventories on the LME are increasing shows that this market is unlikely to cool down any time soon.
Indeed, the amount of aluminum transferred to the stockpiles is only about 125,000 tons, which cannot change the context of the serious aluminum market shortage.
The monthly volatility of LME's aluminum reserve.
It is hard to imagine the aluminum market from being a surplus for many years suddenly turning into a serious shortage.
Manufacturing growth has stalled in China, the world's largest producer, as aluminum smelters fall victim to electricity efficiency targets.
The country imported 2.6 million tons of primary aluminum between 2020 and 2021, a not small number compared to Western stocks. There have been consecutive calls to the LME floor to close the purchase orders.
The energy crisis in Europe and China's need to allocate energy use quotas, combined with strong demand from surging electric vehicle sales, have brought the aluminum market to 66 million tons a year. on a path of "inventory exhaustion" by 2023, according to Goldman Sachs. This bank forecasts aluminum prices in the next 12 months will reach 4,000 USD/ton.
Source: Vietnam Aluminum Profile Association