In January, aluminum prices broke through the $1,800 per metric ton level. That was an important development signaling that bulls are taking over. Just a month ago we pointed out that prices had upside potential.
We believe the key this year will be on the supply side and not as much on the demand side. These are some factors that could limit growth in aluminum output this year:
Pollution in China
According to Reuters, a recent Chinese government document proposed a one-third aluminum capacity shutdown in key smelting regions including: Shandong, Henan, Hebei and Shanxi. The shutdowns would occur during the winter months. That sparked excitement among aluminum investors. These provinces account for over 20% of global aluminum output.
In addition, late last month the country passed a law that will allow it to impose environmental protection taxes from January 2018, following an outbreak of hazardous smog in northern China where many industrial producers are located.