Aluminium prices may gain next year on demand, supply concerns

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Aluminium prices will likely increase next year on strong demand and supply concerns, particularly since its production was affected by the power crisis in China, India and elsewhere this year, according to trade experts.

According to the World Bank, the output of alumina – the key material for the metal’s refining – was also affected due to supply disruptions in Brazil and Jamaica.

“Aluminium prices are forecast to increase six per cent in 2022 after a projected jump of 50 per cent in 2021, but (will) ease going forward as energy constraints dissipate,” the World Bank said in its Commodity Outlook for metals.

31% gain in 2021

On Monday, aluminium for cash was quoted at $2,600.50 a tonne on the London Metal Exchange and the three-month futures at $,2586. On Shanghai Futures Exchange, aluminium for delivery in February was quoted at 18,860 Chinese yuan ($2,961.22) a tonne on Tuesday.

Aluminium had surged to a 13-year high of $3,221 a tonne on October 15 this year before slipping to current levels as power concerns eased. Prices have increased 31 per cent since the beginning of this year.

Dutch multinational investment and financial services firm ING’s Economic and Financial Analysis arm Think said aluminium could be a standout metal next year.

“The aluminium market is moving into a structural deficit, given the lack of investment in smelting capacity. While we will see some smelters bringing back capacity over the course of 2022, it will not be enough to alleviate the tightness in the market,” said ING Think’s Head of Commodities Strategy Warren Patterson.

The Dutch firm’s arm has projected aluminium prices to average close to $3,000 a tonne next year.

Fundamentals’ support

However, US-based Fitch Solutions Country Risk and Industry Research (FSCRIR), expects the metal’s prices to average at $2,300 a tonne as global demand growth is expected to taper off after this year’s robust recovery.

“Yet in 2022, prices will remain supported by strong demand fundamentals and remaining supply concerns,” the rating agency said.

The World Bank said China’s dual policies on energy intensity and overall utilisation this year led to curbs on aluminium production that is energy intensive.

Industrial production in China and India was affected by power shortages amid “insufficient electricity availability”, it said

Demand boosters

Fitch Solutions said the continuing global economic recovery will support demand for aluminium following robust manufacturing activity. Outside of China, recovery in the construction industry that had contracted during the Covid pandemic and vehicle production will boost demand for the metal.

In the long-term, FSCRIR said aluminium prices will remain high as the demand will be supported by the acceleration in the shift to the green economy.

Fitch Solutions has forecast aluminium production at 69.95 million tonnes (mt) next year compared with 67.6 mt this year, while utilisation is projected to increase to 63.99 mt from 62.36 mt this year. (business line)