How will Indonesia's bauxite export ban affect aluminium?
16:10, 21 December 2022
Indonesia has recently announced a bauxite export ban, which will be implemented towards the middle of next year. Bauxite is a key element in aluminium production, making this a protectionist move, in order to boost domestic production of metal ores and industry. Previously, the country had also banned nickel exports, since about January 2020, for the same reason.
In 2021, Indonesia had produced about 25.8 million tonnes of bauxite, which made it the sixth-largest producer in the world. Out of this amount, about 90% is exported currently, which is likely to deal a significant blow to the global aluminium market.
How will Indonesia’s bauxite export ban affect aluminium?
The Indonesian bauxite ban is largely so that the country’s domestic metal processing industry can develop further. This could potentially drive aluminium prices up in the short term, especially as China relies quite a bit on Indonesia for its bauxite imports, totalling about 16% in October this year.
A few months ago, following the escalation of the Russian-Ukrainian conflict, Russia was unable to export its aluminium to the global market any longer, due to multiple international sanctions prohibiting the movement of its goods abroad.
At that time, this had significantly affected aluminium markets, as Russia was the third largest producer of aluminium worldwide, having produced about 3.6 million metric tons in 2020, according to this report.
This was quickly followed by Australia banning bauxite exports to Russia, as a further sanction against its continued aggressions in Ukraine, which set the Russian aluminium industry even further back.
Now, with this latest Indonesian bauxite ban, aluminium prices could potentially surge in the near future, as global supplies tighten further. This is also likely to be supported by China recently having announced a slew of stimulus measures for the construction and real estate sector.
This has gone a long way in providing hope for investors that the country may finally be about to get back on its feet, after months of extended zero-COVID-19 restrictions and lockdowns.
Furthermore, the London Metal Exchange (LME) has decided that it will not ban Russian metals trading on its exchange, as data has revealed that demand is still high, with a number of investors still being very interested.
However, the risk of a global recession as well as China still struggling with increased COVID-19 cases and weak economic growth continue to provide strong headwinds to the metal.
Furthermore, aluminium is still a very high-energy metal to produce, which makes it increasingly expensive to manufacture while this energy crisis is still raging. This has already led to a number of smelters already shutting down.
What is your sentiment on Aluminum?
Aluminium technical analysis
At the time of writing, aluminium was trading at approximately $2,339 per tonne, having seen a rise of about 1.1% on Wednesday. However, the base metal was still trading about 7.3% down from the almost five and a half month-highs seen on December 5.
Furthermore, the metal was trading about 20% down from the highs seen at the end of May and about 41.4% down from early-March, at the peak of the Russia-Ukraine conflict. Coming to the next resistance level, it is likely to be at about $2,500 per tonne, last crossed on December 9th, followed by the $2, 600 per tonne level last seen on June 16.
As for the next support level, it is likely to be around $2,300 level, under which aluminium last dipped below mid-November, followed by the $2,200 level, which the metal last slipped under at the end of September.
Aluminium prices are likely to soar in the short-term due to the Indonesian bauxite ban – Credit" TradingView What is the outlook for aluminium?
The outlook for aluminium in the coming few months will depend heavily on what direction China takes next in the next few months, regarding its COVID-19 restrictions. Although we have already seen a few relaxations, these may be reversed in the near future, as COVID-19 cases keep rising in China.
Furthermore, China’s economic growth is still expected to be quite weak in the coming year, which will definitely impact demand for aluminium, as the construction and real estate sectors could keep struggling, despite receiving stimulus measures.
The possibility of a mild global recession is still very much on the cards, which may further dampen aluminium demand, as industrial and construction activity slows down. However, Indonesia’s bauxite export ban could go some way in putting a floor on prices.
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