After seeing a short-term bullish rebound in July, aluminum prices began to modestly decline again in early August. All in all, the rebound was insufficient to suggest a bullish reversal. As such, global aluminum prices remain within a macro downtrend despite recent directional uncertainty.

Aluminum August

Source: MetalMiner Insights

The Aluminum Monthly Metals Index (MMI) dropped by 2.4% month over month. 

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Aluminum Prices Move Sideways as Energy Costs Make Production Unprofitable

Before Russian energy giant Gazprom decided to cut Nord Stream 1 gas flows to 20%, Europe had already shuttered roughly half of its aluminum smelting capacity. According to Alcoa CEO Roy Harvey, high energy prices mixed with low aluminum spot prices in June made between 10% and 20% of global aluminum smelting operations unprofitable. In China alone, smelter unprofitability extended to around 50% that month. Meanwhile, Norsk Hydro ASA CFO Kildemo estimated that more than one-third of global smelters had operated at a loss.

Now that European countries face energy rationing as energy prices continue upward, aluminum production, especially in Europe, remains pressured. According to a survey conducted by the German Aluminum Association, 9 out of 10 companies would be unable to switch energy sources should gas become unavailable. Indeed, energy shortages could cause the roughly 900,000 tons worth of production cutbacks we’ve witnessed so far this year to double moving into 2023.

Europe’s energy crisis was enough to pause the 4-month downtrend in aluminum prices, if only temporarily. Since mid-July, prices appeared to hit a bottom, reaching their lowest point since April of 2021. Soon after reaching this grim milestone, they began to move sideways. It’s true that the crisis may not be enough to reverse the price trend, especially amid a worsening global demand outlook. Still, for now, it’s enough to add some visible friction to the downward momentum.

Source: Insights

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China is Filling Supply Gaps on Both Sides of the Sanctions

So far this year, Chinese products have increasingly filled the gaps left in the wake of the war in Ukraine. And while Western sanctions have avoided targeting Russian aluminum specifically, the downstream effects of Australia’s export bans on bauxite ore and alumina have disrupted Russian production nonetheless.

That said, China’s increased alumina production and its willingness to ship to Russia limits the effects of these shortages. These shipments have also helped turn China into a net exporter of alumina, a rank it achieved back in April. In Russian LNG exports once destined for Europe have now pivoted toward China.

In addition to alumina, China boosted both its primary aluminum production and exports. Specifically, primary unwrought aluminum exports rose by nearly 364% in the first half of the year over 2021, with a large portion of that material going to Europe.

Related article: The 5 Golden Rules for Sourcing Aluminum

Aluminum Ingots Hit Hardest, But Semis Also Impacted

While ingot production will suffer the brunt of Europe’s energy crisis, semis will also see an undeniable impact. For one, any reduction of primary metal and increase in physical delivery costs will support conversion premiums, especially if high prices are to blame. Secondly, European semis mills continue to face competition from Chinese imports.

It’s true that some Chinese-sourced products have quota restrictions and/or anti-dumping duties, but many do not. Beyond that, those duties become more easily surmountable as the cost of European-produced semi-manufactured products increases.

The return of European anti-dumping duties following a temporary suspension should stem at least some of the flow from China. Nonetheless, semis exports from the country continue to increase. Following an 18% year-over-year rise in 2021, semis exports have seen a 28% increase since the start of 2022.

Biggest Increases and Decreases in Aluminum Prices

  • The LME three-month aluminum price rose by 0.67% month over month to $2,437 per metric ton as of July 1.
  • Indian primary cash aluminum increased by 1.9% to $2.68 per kilogram.
  • Meanwhile, Chinese aluminum scrap decreased by 6.75% to $2,039 per metric ton.
  • Chinese primary cash aluminum fell by 4.59% to $2,713 per metric ton.
  • Chinese aluminum billet fell by 3.88% to $2,756 per metric ton.

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Rare earths have seen a surge in demand all around the world. After all, these minerals are key components of everything from solar panels to electric car batteries to defense equipment. And with Russia’s invasion of Ukraine disrupting much of the supply chain, the need for rare earths has become even more dire.

rare earths loaded on cargo ship in China

MetalMiner Insights covers a full price range of different rare earth types. Learn more here!

A Rare Earths “Plan of Action”

For the first time ever, the United Kingdom (UK) Government has released a “Critical Minerals Strategy.” The policy spells out the country’s game plan for developing a more consistent, UK-based supply of rare earths. The multi-pronged strategy includes ramping up domestic production of minerals like lithium, graphite, and silicon. The UK will also conduct research and development in this field while attempting to boost reuse and recycling across the country.

The Department for Business, Energy, and Industrial Strategy (BEIS) recently posted the entire plan on its website. Some of the fine points include effort to:

  • Accelerate the growth of the UK’s domestic capabilities.
  • Collaborate with international partners.
  • Enhance international markets to make them more responsive, transparent and responsible

Currently, the UK has pockets of mineral wealth stretching from the Scottish Highlands to Cornwall. The country also has at least some expertise in material manufacturing and refining. In recent interviews, Business Secretary Kwasi Kwarteng stressed that the UK would maximize what it produces along the critical minerals value chain in a way that creates jobs and growth. However, they wish to protect communities and the natural environment at the same time.

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A New Facility to Match the New Policy

Britain today finds itself in a vulnerable position, especially given the presence of so many rising geopolitical threats. After all, the vast majority of critical minerals come from just a few countries, the main one being China. That’s why the new plan involves developing supply chains that reinforce the UK’s national security interests.

Uk and China

To that point, the country recently began work on a rare earth processing hub at the Saltend Chemicals Park in Hull, East Yorkshire. Among other things, the multi-million dollar facility will refine rare earth oxides required for magnet production. Magnets, of course, are a key component in the manufacture of EVs.

To underpin the long-term nature of this strategy, the UK will also evaluate the criticality of its minerals every year. This will be spearheaded by the new Critical Minerals Intelligence Centre (CMIC), which will, in turn, be led by the British Geological Survey (BGS).

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