Aluminium Prices Set to Rise Further Amid Supply Concerns and Policy Shifts
Aluminium prices on the Multi Commodity Exchange of India (MCX) and the London Metal Exchange (LME) have risen by 14% so far in 2024, and analysts predict a further increase of 5-6% by year-end. The rise is attributed to persistent concerns about raw material supplies and China's recent decision to end its export tax rebate on aluminium, which is expected to tighten global supply.
BMI, a unit of Fitch Solutions, has revised its aluminium price forecast for 2024 to \$2,450 per tonne, up from \$2,400, citing stronger individual market dynamics and broader market fundamentals. Ajay Kedia, director at Kedia Advisory, expects aluminium prices on the LME to reach between \$2,750 and \$2,780 per tonne in the short term, while MCX prices could rise to INR 260 per kg. Currently, the most traded December aluminium contract on the MCX stands at INR 243.15 per kg, while the LME three-month contract is at \$2,619 per tonne.
The decision by China’s finance ministry to cancel the export tax rebate on aluminium products from December 1 has raised concerns about a tightening supply, as more production is likely to stay within China to meet domestic demand. China, which produces nearly 60% of the world’s aluminium, saw its output rise by 120,000 tonnes in October to reach 3.72 million tonnes. Analysts from Ventura Securities note that this move will make Chinese aluminium more expensive on the international market, leading to reduced export volumes.
ING Economics suggested that this cancellation of the export rebate might be a strategic move by China, demonstrating its influence over global markets amidst trade tensions with the United States, particularly following Donald Trump's presidential election win. Trump's administration has pledged to impose new tariffs on China, which may escalate trade tensions further.
Further complicating the supply landscape, Russian producer Rusal announced it would cut aluminium output by 250,000 tonnes per annum due to the high cost of alumina, which recently exceeded \$700 per tonne. Rusal, one of the world’s major aluminium producers, cited that more than a third of its alumina requirements had to be sourced overseas at high market prices, putting pressure on profitability.
Aluminium inventories are also falling, with stocks in warehouses monitored by the Shanghai Futures Exchange at their lowest levels since June, at 231,854 tonnes. Inventories have declined for the fourth consecutive week, contributing to the tightening market.
Market sentiment remains bullish, with analysts like Manoj Jain from Prithvi Finmart projecting that LME prices could test \$2,800 per tonne by the end of the year, while MCX prices may reach INR 260-265 per kg. Ventura Securities has recommended a buy-on-dips strategy for aluminium, suggesting INR 241-240 as a favorable buying zone, but warned of a potential bearish trend if prices fall below INR 236.
A stronger U.S. dollar, following Trump's election win, poses a downside risk for aluminium prices. The potential for new tariffs on imports from China, Mexico, and Canada could weigh on base metals, ING Economics noted, as concerns about a global trade war and a weaker demand outlook in China persist.
Despite the short-term uncertainties, analysts are optimistic about the long-term outlook for aluminium. The global transition to green energy is expected to support aluminium demand, as the metal plays a crucial role in renewable energy infrastructure, including solar panels, wind turbines, and electric vehicles.
BMI expects global aluminium consumption to rise significantly, from 70.5 million tonnes in 2024 to 88.2 million tonnes by 2033, driven by increased demand from industries such as automotive, construction, renewables, and packaging. The ongoing green energy transition is anticipated to be a major driver of this growth, as aluminium's lightweight and durable properties make it a key material for sustainable technologies.
