Macro

Aluminum Price Drop Predicted as Supply Surges, Demand Wanes

Trafigura forecasts a 6% drop in aluminum prices amid supply return and weakening demand, despite a current 8% rally.

By Barry Stearns

5/15, 09:26 EDT
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Key Takeaway

  • Trafigura predicts a 6% drop in aluminum prices over six months as supply increases and high interest rates suppress demand.
  • Aluminum futures have risen 8% this year but are expected to return to $2,100-$2,400 per ton range due to weak consumption.
  • Record restarts of curtailed production are boosting supply, with Trafigura significantly contributing to LME stock levels.

Aluminum Demand Outlook Dims

Henry Van, a metals analyst from Trafigura Group, one of the leading traders in the aluminum market, painted a bleak picture for aluminum demand at the CRU World Aluminum Conference in London. Van highlighted a "very grim demand picture" for aluminum, attributing the current rally in prices to being "fundamentally overdone." Despite an 8% increase in three-month aluminum futures on the London Metal Exchange (LME) this year, Van forecasts a decline of at least 6% in aluminum prices over the next six months. This anticipated drop is based on the return of supply to the market and the dampening effect of high interest rates on manufacturing demand.

Price Correction Expected

The analyst predicts aluminum prices will revert to a previous range of $2,100 to $2,400 per ton within the next six months. This adjustment is expected due to worsening consumption patterns, especially outside of China, where demand for aluminum—used in a wide array of products from solar panels to cars and beverage cans—is weakening. The current price level, which saw aluminum futures trading at $2,545 a ton by the close of the market on Tuesday, is seen as unsustainable given the demand outlook and increasing supply.

Supply Side Adjustments

In response to higher aluminum prices, smelters are incentivized to restart curtailed production, thus adding to the market's supply. Van noted that there are currently "some of the highest restarts on record," which could further pressure prices downward. This increase in supply is evidenced by a significant delivery of aluminum onto the LME, reported by Bloomberg News, which saw total stocks double in a matter of days to over 1 million tons, reaching the highest level since 2021.

Broader Metals Market Trends

The dynamics in the aluminum market are occurring against a backdrop of broader commodities gains and peculiar movements in other metals. For instance, copper prices fell by 0.9% to $10,091 a ton, despite earlier reaching a two-year high. This anomaly is attributed to investors betting on a tight mine supply potentially leading to a shortfall. Citigroup Inc. analysts have even projected copper could climb to $10,500 a ton in the near term due to a "looming tightening" of supply. Meanwhile, zinc and nickel saw declines on the LME, whereas tin prices climbed by 1.4%.

Street Views

  • Henry Van, Trafigura Group (Bearish on aluminum prices):

    "We’re looking at a very grim demand picture right now... It’s a fundamentally overdone rally."