Commodities traders are wont to describe bars of aluminium as “ingots of electricity”: an important input cost is energy. The soaring price of juice coupled with strong demand for the rustless metal has pushed aluminium to highs not seen since late 2008, nearly $3,200 a tonne. With inventories low, and demand unlikely to diminish this year, this industrial metal has surprisingly good prospects.
Transport and construction consume well over half the amount produced. Autos alone represent the second largest consumer of aluminium. A post-pandemic rebound in global car sales has yet to tail off. If it does, China’s push into electric vehicles, which depend on aluminium to reduce weight, should ensure aluminium demand persists. EVs use 45 per cent more of it than internal combustion engine cars, notes Bernstein. By 2035 EVs should make up half of all cars produced.
Infrastructure spending also supports aluminium. Demand from construction and electric cable manufacturers — together a third of consumption — should increase by half by 2040. Of course, forecasts can change and economic expansion waxes and wanes. But aluminium’s role as a lightweight, highly conductive metal will not.
What of energy? This makes up 34 per cent of aluminium’s production cost, second only to the alumina ore itself. As natural gas and thermal coal prices multiplied, power prices have followed. Higher electricity prices in Europe and China — the world’s largest producer — in turn lift the metal’s price.
Meanwhile, supply is tight. Inventories of aluminium have fallen to 7.5 weeks of consumption, not far from five-year lows. Worse, Covid-19 restrictions in Guangxi a key area of Chinese production has tightened output.
All this is good news for big listed producers such as Rusal, which trades in Hong Kong, and Norway’s Norsk Hydro. Their shares have doubled in dollar terms over 12 months, far outperforming MSCI’s World Metals and Mining index. It helps that both have their own sources of renewable hydroelectric power.
Aluminium is no longer the dull metal. Expect it to remain well bid in months to come.
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