London, August 17, 2023 – The global aluminum market is grappling with a persistent oversupply as sluggish demand, particularly in China and other regions, continues to exert downward pressure on aluminum prices. Analysts predict that this challenging scenario is likely to extend through the end of 2023.
The benchmark aluminum price on the London Metal Exchange (LME) has recently hit a five-week low, plunging by 20% since mid-July. Analysts attribute the price decline primarily to subdued demand, not limited to China but spanning across the global landscape.
Despite hints at stimulus measures by the Chinese government, the lack of specific details has failed to provide the necessary impetus to rejuvenate demand and boost aluminum prices. China accounts for approximately 60% of the world’s aluminum production, with an estimated output of 70 million tons expected this year. The recent improvement in hydroelectric supply in Yunnan Province has led to a rebound in China’s aluminum output, exacerbating the issue of global aluminum oversupply.
While aluminum inventories remain relatively low, weakening spot market differentials suggest that China may struggle to absorb excess aluminum from developed nations. Moreover, efforts by central banks in the United States and Europe to raise interest rates in a bid to curb inflation have contributed to stagnant industrial activities, further dampening aluminum demand.
Looking at the premiums for duty-paid aluminum in the spot market, significant declines have been observed. Duty-paid premiums in the United States and Europe have dropped by 25% and 15%, respectively. Analysts at Morgan Stanley emphasize that under current conditions, the likelihood of significant restarts in European aluminum smelters is minimal.
In conclusion, the global aluminum market continues to grapple with oversupply due to lackluster demand, resulting in sustained price declines that are expected to persist until the end of 2023. China’s subdued demand and increased aluminum output remain primary drivers. Additionally, stagnant industrial activities in the United States and Europe have added to the negative demand outlook for aluminum. The aluminum market’s road to recovery is expected to encounter substantial challenges given the current circumstances.
Post time: Aug-17-2023