Aluminum prices hit new highs this week, rising above $1,700 per metric ton on the London Metal Exchange. Aluminum supply has increased this year as rising aluminum prices triggered release of new capacity and restarts of idled capacity. However, as we recently pointed out, there are other factors pushing aluminum prices up:
It takes a lot of energy to smelt aluminum. Indeed, energy accounts for around half of the cost for Chinese smelters to produce aluminum.
Thermal coal prices in China have more than doubled this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. Alumina prices in China have also entered the upward track from mid-August, increasing around 50% so far this year.
Chinese demand from infrastructure and construction has been robust this year. The auto sector, another big industry for aluminum demand, continues to look strong. In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year.
What This Means For Metal Buyers
Industrial metals have been in bullish mode since early this year. Aluminum prices are finally jumping on the bandwagon. Aluminum buyers should minimize their price risk exposure if they haven’t done it yet.