Trading news

A fair price for aluminum

The aluminum market has been bearish for almost a year. The maximum was last updated just above $2500 per ton a year ago. Over the past year, the price of the metal has decreased by almost 25%. The aluminum industry showed the annual dynamics similar to that of the US stock market; in total, a portfolio of 6 major stocks got cheaper by almost 28%. The price has stabilized in the trading range of $ 1820-1920 since the end of last year. The market volatility is moderate, but such consolidation can be a turning point in the medium or long term.

There has been an increase in aluminum production worldwide. The International Aluminum Institute (IAI) reported that global aluminum production in 2018 increased by 1.5% to 64.34 million tons. In the first quarter of 2019 North America produced 947 thousand tons of aluminum (an increase in production by almost 2.3%), and China produced about 8.925 million tons of metal (an increase of almost 1,6%).

Many industrial enterprises are going to increase their capacities or even build new plants:

• According to Reuters, China Hongqiao Group is actively replacing outdated primary aluminum smelting capacities with new ones. The commissioning of new lines will bring another 542 thousand tons of metal per year.
• Saudi company Maaden, the leader of the national mining industry and non-ferrous metallurgy, is considering the possibility of expanding its aluminum smelting capacity.
• Norway-based corporation Hydro made a decision to implement new technology in aluminum production for the automobile industry, which is more than $ 20 million worth.
• The Russian company Rusal and the company American Braidy Industries intend to create a joint project to produce flat rolled products for the US automotive industry. Rusal will supply aluminum directly from a plant in Siberia.

Such an activity is primarily caused by an increase in demand. For example, the demand for flat rolled metal in North America has been showing strong growth over the past 5 years. The same is observed around the world, especially in the auto sector.

Recently, the US trade representative made an official statement that the new agreement between the US, Mexico and Canada (USMCA) implies a $600 million increase the consumption of steel and aluminum in the automotive industry over 5 years. According to the trade representative, the updated USMCA rules considering the origin of car production will increase the consumption of vehicle parts at least by $23 billion over 5 years.

All these factors indicate an equilibrium in the aluminum market, which is likely to shift in the future. A correct assessment of future demand, especially in the automotive industry, is going to play an important role in it.

Olymp Trade Review

Tuesday, 23 Apr, 2019 / 2:08

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