The aluminum shortfall could potentially turn into a surplus later this year.

However you slice and dice the statistics — and there are numerous ways stats can be sliced and diced — the global aluminum market is tight.
Whether we look at primary ingot, extrusion billet or rolling slab intermediates, or semi-finished sheets/plates, tubes and extrusions mill lead times are long and conversion premiums are high. Meanwhile, the global economy has bounced back from the pandemic. Local distortions, such as tariff barriers, to traditional supply chains have added to bottlenecks and robust restocking.
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Aluminum deficit to surplus

Rising stocks

All the same stocks have risen, with LME inventory mostly in Malaysia (positioned for on shipment to China, should the LME-SHFE arbitrage window open up again) contributing to a rise of 457,000 tons on the LME.
On the SHFE, stocks rose by 131,000 tons by the end of May compared to the end of 2020.
May’s strong showing came despite a 0.8% fall in output in China, as reported by Capital Economics. Droughts in Yunnan province forced some production cuts. Beijing felt obliged to counter the rise in prices by suggesting it could release aluminum from its national reserves. It has not taken that move yet. However, the mere suggestion helped dampen enthusiasm for higher prices.
Those high prices have been driving a rise in aluminum output outside of China this spring. Now, restrictions in Yunnan are being lifted, which will no doubt encourage a sharp increase in domestic output.

Output gains could cap prices

We wrote last week about peak coal/peak aluminum in China and speculated about the knock-on effect for prices.
But rising global output alone could be enough to cap further global aluminum price rises this year as many of the major economies get close to pre-pandemic levels of consumption.
In the short term, the rising dollar will add to deflationary price pressures, not just for aluminum but across the commodities sector.
As our recent annual price outlook advised, the downside support level is therefore positioned a lot lower than the upside resistance level. From a fundamental perspective, rising supply looks like it may outstrip rising demand.
This year’s primary metal deficit could reverse towards the year’s end.
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