Aluminium prices have fallen over 30% since hitting record highs in March 2022. Souring global economic growth prospects and a rising dollar sparked by an aggressive tightening policy by the US Federal Reserve (Fed) have added selling pressure on the industrial metal.
Strict Covid-19 lockdowns in China, the world’s largest consumer of aluminium, further weakened demand for the metal used in numerous industries including construction, automobiles, electronics and packaging.
Aluminium prices in spot markets are currently hovering above seven-month lows near $2,500 per tonne, having seen weekly losses in 11 of the 13 weeks since hitting all-time highs of over $4,000 per tonne in early March.
Going into the second half of the year, there are several factors that could influence the aluminium price forecast. We will discuss the situation below in our look at aluminium price predictions and analysis.
Should I invest in aluminium?
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 Russia-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 the demand for the metal. Aluminium is used in structural body frames and battery packs to keep electric cars light in order to improve battery efficiency.
The metal’s unique property of being easily recyclable has resulted in 75% of all aluminium ever produced to be still in use, according to Norwegian aluminium company Norsk Hyrdo.
Environment-friendly initiatives from companies like Apple (AAPL) have prompted the increased use of recycled aluminium, alongside recycled tungsten, rare earths and cobalt.
Investors may find it useful to know that aluminium production is a highly 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 like India-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.
Rise to record highs and recent fall
Aluminium prices rebounded with strength in 2021 amid the reopening of economies following Covid-19 lockdowns. The developments in China, which accounted for half of global aluminium production in 2020, dominated price action of 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 its October 2021 peak as weakened coal prices at the time helped lower production prices. 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 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.
“The overseas production cuts caused by the war were mainly found in Western European countries, with the total production cuts exceeding 900,000 mt, which led to a certain contraction in overseas supply,” said Shanghai Metals Market in a blog post.
“At the same time, the Russian-Ukrainian war significantly raised energy prices, thus casting a great impact on the production cost of aluminium.”
What is your sentiment on Aluminum?
Today the focus has shifted from supply to demand. China’s zero-Covid strategy has brought its industrial centres to a standstill. Furthermore, aggressive interest rate hikes from the US Federal Reserve have pushed the US dollar index to a near 20-year high, denting commodity demand due to higher foreign exchange costs.
As a result, aluminium prices have dropped over 30% from the record highs hit about three months ago.
Aluminium price forecast for the rest of 2022
According to Sucden Financial’s quarterly metals report, Chinese aluminium supply has recovered following the end of the Winter Olympics and “power rationing for the blue sky initiative”.
The operating rates of Chinese aluminium smelters stood at 90.8%, as of early April, hinting at Chinese supply making up ground for lost Russian output. The report pointed to Europe's increasing dependence on Chinese imports as aluminium export jumped to its second-highest level ever in April.
In China, demand remains weak as the nation’s material-hungry real estate sector continues to be impacted by the government’s deleveraging initiative that started in 2021 and zero-Covid restrictions that have continued into 2022. Furthermore, pandemic-induced bottlenecks have strained shipments and made it difficult for companies to ship raw materials and products.
“China is manufacturing on a needs-only basis, and demand will only see some upside given lockdown relaxation and stimulus, however, that will either be late Q2 or Q3,” said Sucden Financial.
With regards to aluminium price predictions for 2022, Shanghai Metals Market (SMM) said that prices will fluctuate but will not “rise or drop steeply” in the third and fourth quarter of the year.
“But ultimately, SMM thinks that the aluminium market is in the process of marginal weakening throughout 2022, meaning that aluminium prices will remain in the downward trajectory with fluctuations,” said Shanghai Metals Market.
Elsewhere, Fitch Ratings maintained its 2022 aluminium price forecasts at $3,000 per tonne.
“While we do not expect prices to collapse back to pre-Covid levels yet, they will continue to be under pressure in Q2 2022 at least as Chinese demand falters under the government's zero Covid policy,” said the research firm.
The Westpac Market Outlook June 2022 report forecasted aluminium prices to average at $2,943 per tonne in 2022 and $2,710 in 2023.
Aluminium price forecast for 2025 and 2030
Looking to the future, there are many tailwinds for aluminium demand due to the metal's unique properties that 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 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 Ratings’ aluminium price forecast for 2025, the metal was expected to trade at $2,750 per tonne. Aluminium price forecast for 2030 saw the metal trading at $2,900 per tonne.
Westpac expected aluminium to trade at $2,147 in September 2024. It did not give any aluminium price forecast for 2025 and 2030.
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.
Is aluminium a good investment?
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.
Will aluminium go up ?
The Westpac Market Outlook June 2022 report forecasted aluminium prices to average at $2,943 per tonne in 2022 and $2,710 per tonne in 2023. Note however that analysts’ predictions can be wrong and shouldn’t be used as substitutes for your own research.
Should I invest in aluminium?
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.