Company / Analytics

Analytics, 02 September 2021

Aluminium prices lifted to a 10-year high

Aluminium prices hit a 10-year high this week (Tuesday) on concerns from China, where top suppliers faced tougher power controls, stoking supply worries.

The fundamentals in metal markets have been largely overlooked, as investors remain focused on an increase in Covid-19 cases and a tapering of the Federal Reserve’s monetary stimulus later this year.

Supply is likely to remain constrained as Beijing seeks to curb pollution from the metal’s energy-intensive production process. Analysts at Goldman Sachs have raised their price target for aluminium, along with nickel and zinc.

Aluminium on the rise

Aluminium’s year-long rebound quickened this morning with a 3% surge to reach the highest in a decade. Supplies of the metal are becoming increasingly tight as Beijing seeks to curb pollution from the metal’s energy-intensive production process.

Combined with soaring global demand, aluminium prices have been supported by production curbs in Chinese smelting regions often aimed at easing the strain on the power grid.

China’s Guangxi region is a global aluminium and alumina production hub. The region is China’s third-biggest producer of alumina, a primary product of aluminium, with an output of 925,500 tonnes in July, according to the National Bureau of Statistics.

The regional government on Monday called for tougher controls on energy consumption in a statement issued after a teleconference. Analysts expect China’s production this year to remain above last year, though at a slower pace; with output about 500,000-600,000 tonnes lower than was expected at the start of 2021.

According to Consultancy Mysteel, eight aluminium smelting companies in Guangxi will have to keep their September production at a maximum of 80% of average monthly output in the first half of the year. This could equate to a reduction in annual operating capacity of 475,000 tonnes.

Meanwhile, China’s Yunan province, which has been hit by electricity shortages, is forecast to account for 50 per cent of the global growth in aluminium production between 2020 and 2023, according to analysts at consultancy CRU as reported by Financial Times. Yunan relies on hydropower and has rationed electricity in recent months due to a prolonged dry season.

What is the price of aluminium?

Aluminium price has risen by 50 per cent over the past year, adding further upward pressure on prices as the global economy recovers from the Covid-19 pandemic.

Benchmark three-month aluminium climbed 2.7% to $2,722 on Tuesday, after touching its highest since May 2011 at $2,726.50.

The most-traded October aluminium contract on the Shanghai Futures Exchange closed 1.2% up at 21,390 yuan ($3,311) a tonne, hovering near its highest since Aug. 2008.

On the other hand, the LME cash aluminium contract was trading at a premium of $21 a tonne to the three-month contract, indicating tightening nearby supplies. Goldman Sachs Group Inc. analysts raised their price target for aluminium, along with nickel and zinc, noting that metals prices would likely increase because of strong demand in China and developed economies such as the US and Europe. The bank increased its 12-month price target for aluminium to $3,200 a tonne on Monday.

Commodities including tin and copper have all hit record highs this year due to resurgent demand and supply chain bottlenecks due to the pandemic, which has prevented mines and smelters from working at full capacity. The fundamentals in metal markets have been largely overlooked, as investors remain focused on an increase in Covid-19 cases and a tapering of the Federal Reserve’s monetary stimulus later this year.

On Tuesday, copper rose 1.3% to $9,530 a tonne, zinc was flat at $3,002, lead shed 1.5% to $2,262 and tin advanced by 1% to $33,900. Nickel jumped by 3.2% to $19,610 and hit record prices on ShFE, supported by low stocks and higher demand.

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