Tight Supply Pushes Aluminum Prices to New Highs

Aluminum prices have risen to a new high and are now already at $3,732.30 per ton. Yesterday alone, the aluminum price had increased by almost 6% and could increase by a good 72% within a year. Supply on the aluminum market remains tight due to sanctions against Russia, the second-largest aluminum producer. With the invasion of Russian troops in Ukraine and the resulting economic sanctions, many commodity prices have risen sharply, including the price of aluminum.

There is also the current situation in China, where the government is trying to boost the economy there through stimulus measures. The measures come after the real estate sector experienced a downturn in the past year due to loan defaults by some Chinese construction companies.

Fitch, a credit rating agency has projected increasing Chinese demand for aluminum in 2022,

“While we do not expect prices to maintain their current levels, they will continue to receive support on the demand side from Chinese stimulus spending, and on the supply side from high input costs and supply chain issues over 2022. The Chinese government announced on January 25 that Beijing will set a reasonable annual quota for local government bonds to boost infrastructure investment in 2022, which will be very supportive for aluminium demand.”

Fitch

In addition, demand for aluminum is expected to increase in the coming years due to the push for green energy,

“Going forward, we expect aluminium prices to remain elevated in the coming years, as demand is supported by the accelerating shift to a green economy. We also note that rising demand for low-carbon aluminium presents a future risk to aluminium pricing.”

Fitch

Alcoa, one of the largest aluminum producers, agrees. Accordingly, the aluminum price is expected to remain high and supply will continue to be tight according to CFO William Oplinger,

“It’s a very fluid situation […] it will really depend on how long this drags out and how long the sanctions are in place.”

William Oplinger Alcoa CFO

He also said that Russian aluminum producers may not be able to meet market demand because of the sanctions. This also depends on the extent to which the sanctions prevent Russian producers from sourcing bauxite, the base raw material for aluminum.

“They may have to source some of the bauxite that they are getting out of Brazil from Guinea or from Africa instead. “On the alumina side, it will all depend on what is going on with Nikolaev and Aughinish [Russian alumina refineries],”

according to William Oplinger Alcoa CFO

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