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With aluminium demand likely to be slack in view of a slow recovery in the global economy, the metal’s prices are unlikely to recover this year after having declined 6 per cent since January.
“The LME aluminium spot price is forecast to fall by 13 per cent year-on-year in 2023, to average $2,365 a tonne. Slowing world growth is expected to be a significant driver of lower aluminium prices,” said Australia’s Office of the Chief Economist (AOCE).
Research agency BMI, a unit of Fitch Solutions, said a slow recovery of Mainland China’s commodity-intensive sectors and a poor global demand outlook has put pressure on prices in recent months, which is likely to continue for the remainder of 2023.
Price outlook
ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING, said the fundamental picture for aluminium has not changed. “In Europe, however, we don’t expect major restarts before 2025, while demand for aluminium remains weak,” it said.
Taking stock of the situation, BMI said, “We are making a downward revision to our aluminium price forecast for 2023 to an annual average of $2,300/tonne from $2,500 previously.”
Currently, 3-month aluminium contracts on the London Metal Exchange (LME) is ruling at $2,178 a tonne, while in spot trade, it is quoted at $2,068.
The prices of the metal, widely used in aerospace applications, packaging, automobiles, railroad cars and construction, are hovering near a 5-week low after Chinese July data disappointed the market.
After peaking in January on hopes that the rebound in the Chinese economy will be strong, aluminium prices have been on a steady downslope.
Chinese exports slip
“Prices have averaged $2,327/tonne in the year-to-date as of August 21, lower than the average of $2,711/tonne seen in full year 2022,” BMI said. “Chinese exports of aluminium products did not improve in July, signalling weak demand for aluminium products globally,” ING Think said.
A contraction in the commodity-intensive manufacturing sector can be attributed to weak export demand outside China due to the poor global economic environment, BMI said. “As a result, we expect to see declines in the factory activity of aluminium-intensive products weigh on internal demand in the short term and put downward pressure on prices,” the research agency said.
Major contributor to bearish trend
BMI said China has been the major contributor to aluminium price weakness. China is the largest consumer of aluminium by far and is expected to take up 62.9 per cent of global aluminium demand in 2023.
AOCE said sluggish primary aluminium demand in Europe and tight monetary conditions in major economies have outweighed the impacts on aluminium prices of supply disruptions in China’s Yunnan province.
Shanghai Metal Market News said China’s export trend is “slightly lower than expected”, indicating a steady but weak outlook ahead.
BMI said besides slack demand for goods containing aluminium, the construction sector, which makes up 30 per cent of the metal’s demand in China, is also struggling. Last week, China’s property giant Evergrande filed for bankruptcy in a New York court raising concerns over the construction sector’s path ahead.
Modest stimulus package
ING Think said 81 per cent of LME aluminium inventories were of Russian origin. “The large share of Russian aluminium sitting in LME warehouses will raise concerns over whether LME aluminium prices are increasingly reflecting the price of Russian-origin aluminium,” it said.
On the supply side, BMI estimates Chinese production to rise 2.2 per cent year-on-year (y-o-y) to 41.3 million tonnes (mt) in 2023 compared with a 4 per cent y-o-y rise to 40.5 mt in 2022.
“While we remain hopeful that the Chinese government will introduce stimulus that will boost commodities demand, we note downside risks to this view are building. Even then, any stimulus is likely to be modest, in light of financial risks facing the Chinese economy, and insufficient to propel metal prices much further,” BMI said.
However, aluminium prices are likely to rule high in the long term as a shift to the green economy world is expected to support demand.
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