Aluminium Prices Are Likely to Rise and Then Fall throughout 2022

SHANGHAI, Jan 13 - It is expected that throughout 2022, LME aluminium and SHFE aluminium will move between $2,340-3,230/mt and 17,500-24,800 yuan/mt respectively amid expanding alumina capacities and recovering aluminium capacities. The prices will present an inverted-V shaped chart.

SHFE aluminium rose 31.82% in 2021, and its trend can be roughly divided into two stages. Since the beginning of the year to mid-October, aluminium prices continued to move higher in light of overseas economic repair, export growth, energy consumption dual control policy and overseas natural gas price surge. The aluminium prices plummeted since mid-October when the central government began to regulate coal prices, and the support from the cost side collapsed. The prices, however, rebounded by end of the year amid soaring energy prices in the Europe.

Domestically speaking, around 65% of domestic bauxite supplies are imported from overseas mainly from Guinea, Australia and Indonesia. In 2021, the coup in Guinea did not affect its export of bauxite. The Indonesian government has repeatedly mentioned the ban on bauxite exports, but it will also has little impact on domestic bauxite supply if this part can be made up through imports from other countries. Nonetheless, the market still need to pay close attention to the risks brought about by political instability overseas as China relies heavily on imports of bauxite.

Global alumina output from January to November 2021 stood at 127 million mt, an increase of 4.3% year-on-year, including China's alumina output of 69.01 million mt, an increase of 6.5% year-on-year. In 2022, quite a number of domestic and foreign alumina projects were put into production, most of which were located in Indonesia. In addition, the Jamalco alumina plant with an annual production capacity of 1.42 million mt is expected to re-start in 2022.

As of December 2021, China's alumina installed capacity stood at 89.54 million mt, and the operating capacity recorded 72.25 million mt. It is expected that there will an additional of 7.3 million mt of capacity in 2022, and the resumption of production capacity is conservatively estimated at 2 million mt.

The global alumina capacity is in a surplus.

In 2021, domestic aluminium production capacity was restricted by the power rationing and dual control of energy consumption. As of November 2021, China's total aluminium installed capacity stood at 42.83 million mt, and the operating capacity was 37.57 million mt, with a capacity utilisation rate of 87.7%. In January-November 2021, domestic aluminium output recorded 35.45 million mt, an increase of 5.7% year-on-year.

Traditional consumption slowing down? Growing demand from new energy sector

In 2021, domestic real estate and electricity investment growth rate declined, weighing on aluminium consumption. Based on the unchanged direction of domestic real estate regulation in 2022, the growth rate of real estate consumption is still under downward pressure.

But the new energy posed significant potential.

For example, data show that from January to November 2021, the domestic aluminium consumption in the automobile sector stood at 2.824 million mt, an increase of 5.3% year-on-year. It is expected that in 2022, the traditional automobile sector will increase the primary aluminium consumption by about 130,000 mt, and the new energy vehicle sector will contribute added consumption by around 160,000 mt.

Looking into 2022, the Federal Reserve rate hike is expected to accelerate, and the metal prices will be under pressures overall. On China fiscal policy front, in the first half of 2022, the infrastructure investments will increase, and the aluminium demand will improve. As the real estate regulation will maintain the current level, the market may focus on new energy vehicles, photovoltaic industry on the aluminium demand growth. Supply-side concerns of aluminium production includes carbon peaking and carbon neutrality strategy which is expected to restrict aluminium capacity, but the overall situation is expected to improve from 2021.