Demands for aluminium have soared, helping aluminium to bounce back on Monday from their lowest price since January 2017. Data indicated an upswing in exports from the top aluminium-producing country, China, foreshadowing concerns about oversupply.
China is the world’s largest aluminium producer, accounting for 57% of global output totalled to more than 64 million tonnes in 2018. Data showed that Chinese export of aluminium had risen by 7.6% from the previous month, bringing the total export to 536,000 tonnes. The year-to-date shipments were up 12.4%. An increase in demands had sent three-month London Metal Exchange (LME) aluminium price to a 29-month low of $1751 a tonne. The figure was down 0.7% compared to the previous day, marking its weakest price since 11 January 2017 which was $1746 a tonne.
Numerous strikes called by aluminium workers at Arconic and Alcoa had resulted in a surge in aluminium prices. Anger was building up among workers who were kept on the job for more than two weeks after the contract expired. In addition, the strike action attempted to oppose demands for wages, medical and retirement benefit concessions. These strikes prevented the production of aluminium and as such, prices jumped up.
Analysts said that industrial consumers and speculators were buying to reverse the bearish sentiment in the industrial market. This was partly driven by the close down of one of China’s biggest aluminium smelters, Xinfa Group. The refinery was responsible for producing 2.8 million tonnes of aluminium per year. However, it was forced to shut down for an unspecified period due to an environmental dispute. The closure of the factory caused alumina prices to spike.
In addition, Alunorte alumina refinery located in Brazil was faced with environmental disputes, causing the factory to run at half capacity since March 1, 2018. The business is the world’s largest alumina refinery. A production embargo was placed on the business, removing about 242,000 mt per month of alumina from the market. The restriction had a positive price effect on aluminium. Since May 20, 2019, the embargo was lifted in the federal court in Belem, Brazil.
While aluminium is acknowledged for its environmental benefits, particularly in the manufacture of lighter vehicles, the process has a significant problem with storing its toxic by-products. Most of the refineries adopt the Bayer process to extract alumina from bauxite. The resulting by-products are the red mud, which is a mix of un-dissolved alumina, iron oxide, silicon oxide, titanium oxide and multiple other metals. The most common way of dealing with this waste product is by storing in tailing dams or ponds.
It was revealed that 160 million tonnes of red mud were produced. With the increasing demand for aluminium, the amount of residue will also rise to a forecast of 250 million tonnes in 2030. This would be a significant problem if a dam happens to spill, which was the case for the Ajka refinery in Hungary. The dam spill flooded the surrounding area, killed 10 people and left others with caustic burns from the highly alkaline waste material.
Falling aluminium price
Global markets had experienced an extremely volatile price fluctuation amid the infamous trade battle between the U.S. and China. The addition of new tariffs in both countries’ goods had negative implications for everyone. In particular, President Trump imposed a 10% tariff on aluminium imports and this increased tariff had a direct effect on the falling aluminium prices. However, global trade tension has been easing as time goes by, investors are more hopeful than ever and demands for aluminium have been steadily rising.
The beginning of last week, the U.S. threatened Mexico with new tariffs to address the immigration issue. The news sent a shockwave across the global markets as investors were selling off their investments. However, since last Friday, the U.S. and Mexico had reached an agreement that averted new tariffs, restoring confidence in the market and raising hopes of an agreement with China. This reconciliation stabilised other industrial metals and gave a modest boost to LME copper, which increased by 0.2% to $5,810 a tonne. LME lead and nickel also jumped 1.7% and 0.4% to trade at $1,864 and $11,665 a tonne respectively.
As the top provider of aluminium, China’s growing exports were fuelling worries about oversupply. The increasing supply came as a surprise to the market in light of the ongoing trade dispute. Many have speculated that there are now raising concerns over supply pressures in June and the current destocking may decrease. The signs for oversupply were pushing aluminium prices down.
Despite the growing exports of Chinese aluminium in May, Asian markets had failed to respond to these strong numbers. Investors are on high alert about the rising supply for the rest of the year while trade war tensions continue to create uncertainty over future demand.
By Jack Lee
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