Aluminum Prices Firm Amid Tightening Supply and Production Growth

Key Highlights

• Price Trends: Aluminum prices rose 0.3% to Rs 246.95 on MCX, with LME opening lower today at $2,558/mt.
• Supply Challenges: LME warehouse stocks fell 45% since May 2024, while 60% of warrants indicate more withdrawals.
• Global Production: Aluminum production hit a record in December; China’s output grew 4.13% YoY despite some regional cuts.
• Market News: Proposed U.S. metal import tariffs may impact global and domestic pricing differently, creating regional premiums.
• Expert Insight: Falling alumina prices may lower aluminum production costs, while Chinese holiday stockpiling could influence short-term demand.

Aluminum Price

• As of last day, LME opened at $2575 /mt and closed at $2573.5 /mt. Today, LME opened at $2558/mt.
• As of last day, SHFE opened at 20,285 Yuan/MT and closed at 20,230 Yuan/MT. As of today, SHFE opened at 20,255 Yuan/MT.
• As of last day, MCX closed at Rs 246.95/Kg. Today, the market opened at Rs 245.75/Kg.

Aluminum Demand & Supply

• Aluminum prices rose by 0.3% to Rs 246.95, driven by concerns over declining stocks in LME-registered warehouses, which have dropped 45% since May 2024, reaching 619,375 mt. The high level of cancelled warrants (nearly 60%) suggests more aluminum will be withdrawn from these warehouses, tightening supply. As a result, the discount for cash aluminum over the three-month contract has narrowed to about $13 per mt, down from over $40 in December.
• However, upside potential is limited by rising aluminum stocks at three major Japanese ports, which increased by 13.2% in December to 323,600 mt. Additionally, global primary aluminum production is steadily increasing, with monthly output expected to exceed 6 million mt by December 2024, setting a new record. In China, the world’s largest producer, production grew by 4.13% year-on-year in December, with a cumulative growth of 3.9% for 2024. Some smelters in Sichuan and Guangxi reduced output due to high costs and technological upgrades.

Aluminum News

• Bank of America analysts noted that the proposed 25% tariffs by President-elect Trump on metal imports from Mexico and Canada could have a "nuanced impact" on metal prices, with both direct and indirect consequences. While tariffs could harm global growth and metals fundamentals, especially if they escalate into a trade war, a more limited approach may mitigate the overall damage.
• The impact on metal pricing will differ based on whether metals are priced domestically or on global exchanges like the LME. For metals tied to the LME, tariffs won't be included in the prices, but US consumers will face regional premiums to account for the tariffs.
• For regionally priced commodities like hot rolled coil, tariffs will directly affect prices, as seen with US steel prices, which have consistently traded at a premium since the 2018 steel tariff.

Expert Opinion

• The current macroeconomic environment is mixed. The Chinese government is still working to boost consumption, regional conflicts remain unresolved, and there is ongoing uncertainty about the pace of interest rate cuts by the US Federal Reserve. On the fundamentals side, aluminum production capacity remained stable in early January, while alumina fundamentals showed a slight surplus. As a result, spot alumina prices are expected to continue their downward trend in the short term.
• Additionally, aluminum industry costs are anticipated to keep decreasing. Key factors to monitor include the impact of falling spot alumina prices on aluminum production costs, as well as the effects of downstream holiday schedules and continued pre-holiday stockpiling in China.