Aluminium Prices Expected to Rise Amid Tight Supply and Weaker Dollar, Despite Surplus Outlook
Aluminium prices, which have dropped 9% since peaking at $2,695 per tonne in May 2024, are likely to rebound due to ongoing supply constraints, according to market analysts. The metal recently hit a five-week high, driven by alumina shortages in China, and analysts predict further price increases throughout the year despite a slightly more positive supply outlook for the second half of 2024.
Research agency BMI, a unit of Fitch Solutions, has revised its forecast for the aluminium market surplus in 2024 to 97,000 tonnes, down from an earlier estimate of 116,000 tonnes. This adjustment reflects expectations that global demand, particularly from China’s clean energy sector, will outpace supply growth, keeping the market tight and supporting prices.
Rising aluminium inventories have drawn attention in recent months, with stocks at the London Metal Exchange (LME) reaching their highest levels since 2021. ING Think, the financial analysis arm of Dutch multinational ING, noted that these large inventory levels could weigh on prices in the short term as the market absorbs the surplus material. However, the firm expects the impact to be temporary as market dynamics adjust.
The Australian Office of the Chief Economist (AOCE) reported that the LME spot price for aluminium reached $2,695 per tonne earlier this year following a ban on Russian aluminium deliveries to LME warehouses. The spot price has since moderated to $2,452 per tonne as of late June, with the AOCE forecasting a 6.2% year-on-year increase in the average price for 2024, bringing it to $2,390 per tonne.
A weaker U.S. dollar and potential interest rate cuts by the Federal Reserve could provide additional support for aluminium prices in the coming months. BMI reiterated its forecast for aluminium prices to average $2,400 per tonne in 2024, highlighting that improved market fundamentals are likely to drive gains compared to 2023, when weak fundamentals led to a 15.6% decline in prices from 2022 levels.
However, risks remain, particularly on the demand side, as economic uncertainty in China continues to affect sentiment towards metals that heavily rely on Chinese consumption.
The ongoing impact of geopolitical factors also plays a significant role in the aluminium market. The AOCE noted that the ban on Russian aluminium has led to a significant reshuffling of LME stock holdings, with inventories rising from 490,750 tonnes in April to 1.1 million tonnes in June 2024. The reintroduction of Russian aluminium stocks onto the LME could influence prices, depending on how the market adjusts.
Despite these challenges, analysts remain optimistic about global aluminium demand in 2024. The AOCE highlighted the curtailment of production at Australia’s Kwinana alumina refinery as a factor likely to keep alumina prices high, which could support aluminium prices indirectly. Additionally, ING Think pointed to record-high aluminium output in China, driven by the recovery of hydropower supply in Yunnan, as another key factor influencing the market.
