Aluminium prices have been facing a decline this year due to a global economic slowdown, but experts believe that the slump may be reaching its lowest point. Traders, producers, and analysts are growing more optimistic about the demand for aluminium from clean technologies such as electric vehicles and solar panels.
The aluminium futures benchmark on the London Metal Exchange has dropped nearly 20% since January and over 40% from last year’s highs. This decline is mainly attributed to economic weakness in Europe and the US, as well as poor construction demand in China. However, many producers and traders are forecasting an increase in demand for aluminium in the medium-term.
Aluminium prices this month have experienced a significant contango, meaning that metal bought today is cheaper than its future prices. This reflects weak spot demand and the expectation of higher future prices. Analysts believe that the price cycle for aluminium may be approaching its bottom, especially if demand continues to improve.
The current benchmark for aluminium is around $2170 per tonne, down from over $3,840 per tonne last year. One trader predicts that prices will bottom at around $100-$150 below the current levels and eventually rise in the long term.
Aluminium is widely used in various industries, including buildings, beverage cans, solar panels, automobiles, and airplanes. It is often seen as a gauge of industrial activity. The weakening global economy and its impact on GDP across the globe are driving the weakness in demand, particularly in Europe.
However, there are signs that the situation may be improving as global aluminium stocks begin to run down. China, the largest producer and consumer of aluminium, is showing strong demand, driven by increased spending on clean energy infrastructure. The solar market, in particular, has a high demand for aluminium, as do electric vehicles.
While China’s strong demand has not yet significantly affected global prices, as its domestic production of aluminium is also rising, other regions like southeast Asia and the US are helping to support the market. Europe, on the other hand, has seen much weaker demand for aluminium.
Debate is intensifying in Europe about the role of Russian aluminium in the market. Some European producers are calling for a ban on Russian material, while others argue that free trade in aluminium should be maintained. The current contango in LME aluminium is partly attributed to the accumulation of Russian stocks in LME warehouses. High financing costs also contribute to the situation.
Despite the current weak demand, market participants expect it to change over time. The outlook for aluminium appears more promising in the medium-term, particularly due to the increasing demand from clean technologies.
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