Aluminum Prices Drop Amid Rising Production and Seasonal Demand Slump

Key Takeaways

• Price Decline: Aluminum prices have fallen below $2,600/mt due to rising Chinese production and expectations of lower demand in colder months.
• China’s Record Production: China's aluminum production reached a record 3.71 million mt, pushing total output to a potential 45.3 million mt annually.
• EU Sanctions on Russian Metals: EU countries, led by Poland, push for stricter sanctions on Russian aluminum, although challenges remain due to dependencies.
• Seasonal Demand Slowdown: Seasonal demand for aluminum is expected to drop, particularly in construction, contributing to a further decline in prices.
• Weak Market Sentiment: Market sentiment is weak, driven by rising aluminum inventories, high production costs, and uncertainties over future demand.

Aluminum Price

• As of last day, LME opened at $2566 /mt and closed at $2537 /mt. Today LME opened at $ 2529/mt.
• As of last day, SHFE opened at 19,945 Yuan/mt and closed at 19,935 Yuan/mt. As of today SHFE opened at 19,900 Yuan/mt.
• As of last day, MCX closed at 242.45 Rs/Kg. Today, the market opened at Rs 242.00/Kg.

Aluminum Demand & Supply

• Aluminum prices have fallen below $2,600 per mt due to rising production in China and an expected seasonal drop in demand during the winter. ING analysts highlighted that China’s aluminum production reached a record high last month, with output rising to 3.71 million mt. If this pace continues, China’s annual production could total 45.3 mt.
• The London Metal Exchange's three-month aluminum contract dropped by 1.2%, settling at $2,533.50 per mt. The price decline is mainly driven by anticipated reduced demand in the colder months, typically linked to a slowdown in construction activities.

Aluminum News

• Ten EU countries, led by Poland, are pushing for stricter sanctions on Russian metals, including aluminum, to reduce Russia's revenue. While the EU currently targets specific Russian aluminum products, broader sanctions haven't been imposed, allowing continued imports.
• On December 16, the EU introduced its 15th sanctions package on Russia. However, imposing wider sanctions on aluminum faces challenges, as some EU members depend on Russian aluminum. The EU must find alternative sources before implementing these sanctions.

Expert Opinion

• The US dollar index remained strong, rising 0.088%, while metals saw a general decline. US PMI data revealed a split between the manufacturing and services sectors, with interest rate cut expectations largely unchanged as investors awaited the Federal Reserve's decision. On the fundamentals front, high aluminum production costs led to some production cuts, while domestic aluminum demand entered a deeper off-season.
• These factors, combined with weaker demand and concerns over rising aluminum ingot inventories, have led to pessimism in the market. In the short-term, aluminum prices are expected to remain weak and consolidate, with focus on the Fed's interest rate decision later today.