Strong demand, tightening supply and the Russia-Ukraine crisis have pushed aluminium prices to their highest level since the global financial crisis.
The metal used in everything from aircraft to electric cars and cans rose as much as 3.3% to a 13-year high of $3,236 a tonne on Tuesday. It later eased to $3,187.
Prices of aluminium and other commodities such as crude oil, natural gas and nickel have soared this year as supply has struggled to keep pace with demand as the world only slowly emerges from the Covid-19 pandemic.
“Aluminium markets have been tight and inventories falling or low,” Michael Widmer, a Europe commodities analyst with Bank of America, and his colleagues said in a note, adding that the pricing fundamentals would “remain supported in 2022”.
Several key industrial commodities are trading in “backwardation” — in which traders and consumers are prepared to pay large premiums for immediate supply.
Closing In On Record
Aluminium has risen 13% since the start of the year on the London Metal Exchange and is closing in on its record high of $3,380 a tonne set in 2008. In addition, rising energy prices have impacted refining of the metal, which consumes large amounts of fuel.
“Aluminium smelters in particular tend to rely heavily on power, with around 15MWh of electricity required to produce one tonne of metal,” the BofA analysts said.
“Indeed, energy usually accounts for around 40% of operating costs, implying that this year‘s 70% increase of energy prices could lift operating expenses by up to 30% at some operators.”
Those gains have also boosted shares in Rio Tinto, which hit a six-month high of A$118.98 on Tuesday before falling back to $116. The Anglo-Australian miner is one of the world’s biggest producers of bauxite ore, from which aluminium is extracted.
The 66 million-tonne-a-year aluminium market is on the path to “inventory depletion” by 2023 according to Goldman Sachs. “We believe aluminium markets are facing a melt-up in prices this year,” analyst Nicholas Snowdon said.
- George Russell