Soaring Aluminium Price
Decline in use of aluminium in the power, construction and packaging industries has been noted in Europe due to rise in price of aluminium for consumer. The new spike in price of aluminium is reciprocal to soaring energy costs and production cuts. According to a report published by Reuters on January 5, 2022,
Benchmark aluminium on the London Metal Exchange was up 2.3% at $2,905 a tonne at 1705 GMT, having earlier touched $2,938.5, its highest since Oct 25 and a rise of more than 10% since Nov 5.
Consumers buying aluminium in the physical market usually pay the benchmark price on the London Metal Exchange (the trading and price-formation venue of choice for industrial metals globally) plus a physical market premium that typically includes transport costs and taxes.
"With around 650,000 tonnes of capacity cut so far in Europe, we believe that another 900,000 tonnes of output is at risk of closing down fully or partially," said Michael Widmer, analyst at BoA Securities. Widmer assumes aluminium demand in Western Europe at 8.5 million tonnes this year and a deficit of 5 million tonnes. He expects global consumption at 72 million tonnes and a deficit of 254,000 tonnes.
Slower wind speed in Europe than last year, which lead to less energy production and shortage of power compelled producers to opt for alternative source and acquire more coal and rare, expensive natural gas. Up to 40% of aluminium smelting expenses are accounted to power prior to the power crisis, but this ratio has climbed to 50% or more depending on power sources. Amid falling inventories and expectations of larger deficits as the power crisis especially in Europe persists, smelters are bound to cut production. Aluminium Dunkerque Industries France, Europe’s top smelter, is set to curb production by 15%. Alcoa Corp is also set to halt primary aluminium production at its plant in Spain for two years, the latest casualty of soaring energy prices in Europe reports Pittsburgh Post-Gazette.
Stocks of aluminium in LME approved warehouses have been falling. Meanwhile, a ban on Indonesia exports of thermal coal prompted a surge in coal prices too, which will likely push aluminium production down in both China and India. Anne-Sophie Corbeau, a research scholar at the Center on Global Energy Policy at Columbia University, as quoted in Bloombergquint, says “if there are further supply disruptions or extreme cold weather in the first quarter, we are basically down to shutting down factories. That’s the only thing we can do, because governments cannot have people freezing in the dark”.
"As we enter 2022, European producers are still plagued by elevated power costs and there seems to be no sign of a quick solution to the issue," said ING analyst Wenyu Yao who expects the global aluminium market to see a deficit of around 1.5 million tonnes this year.
"Stocks should have started to build in the (top producer) China onshore market following seasonal patterns," Yao said. "But instead, these have declined to 766,000 tonnes as of Monday, far below the five-year average."
Shortages of aluminium since early last year have seen draws on stocks , which in LME warehouses have more than halved since the middle of March last year.