Aluminum prices have risen around 15% since the beginning of the year.
The metal is currently trading at a two-year high, just below $1,950 per metric ton. A slow but steady rise.
This year’s rally comes as markets tries to price in Chinese anti-pollution capacity cuts next winter. The world’s largest nation-producer of the metal will force “about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi to be shut down over the winter,” reported Reuters, which runs from the middle of November through the middle of March, putting at risk about 1.3 million mt of production.
Some would expect these producers to simply ramp up production ahead of the winter season to make up for lower output during the winter months, however China’s environmental crackdown is already affecting producers as inspection teams visit aluminum smelters on a regular basis to keep production in check.
Global Political Heat
It’s ironic that just as China tackles overcapacity in the form of an environmental clampdown, international pressure on China is rising.
In mid-March, global aluminum associations released a joint letter “in advance of the upcoming G20 summit calling for the creation of a Global Forum to address aluminum overcapacity,” according to an Aluminum Association release. “This is the first time that a global coalition of aluminum producers has called for such an effort to address Chinese overcapacity in the marketplace. Steelmakers have already gone the G20 appeal route to deal with Chinese overproduction in their industry,” according to the release.
According to that joint letter itself, “last year’s G20 resulted in the creation of a Global Forum on steel excess capacity in order to increase information sharing and cooperation.” Aluminum associations hope to create the same thing for aluminum this year. Earlier this month, The Aluminum Association, the trade group for North American primary smelters, filed a petition seeking anti-dumping duties on aluminum foil.
What This Means For Metal Buyers
Aluminum markets are in a bullish mode since we called a bull market last year. Rising political tensions, an environmental clampdown in China and rising raw material costs are three key reasons to believe in this aluminum bull market. Industrial buyers should minimize their commodity risk exposure accordingly.