Fitch: raise aluminum price forecast for this year and next year

After a strong rebound in the first and third quarters of 2021, Fitch Solutions (Fitch Solutions) raised its aluminium price forecasts for this year and next to $3000 and $2800 per tonne, respectively.

By contrast, Fitch had forecast aluminum prices of $2300 this year and $2050 in 2023.

Aluminum prices have been on an upward trajectory since China's economy recovered from the novel coronavirus epidemic in the second quarter of 2021.

Aluminium prices for (LME) futures on the London Metal Exchange hit a more than 13-year high this month, driven mainly by supply-side factors such as higher input costs such as energy and alumina.

As a result, aluminium prices rose sharply in September and October 2021, peaking at $3333 a tonne because of power shortages in China. Power shortages have caused China's aluminum smelters to limit or stop production.

High energy prices elsewhere have squeezed smelters' profits, exacerbating the situation.

However, aluminium prices began to fall in mid-October 2021 after regulators cracked down on coal hoarding and speculative trading.

Fitch reported that the Lunar New year holiday also affected China's aluminium production, while geopolitical tensions in Ukraine increased and the prospect of sanctions against Russia also helped push up aluminum prices.

While Fitch expects aluminium prices to continue to rise sharply this year, they are not expected to remain at their current highs for the whole year due to a slight easing in supply problems.

The resumption of work and production in Baise, China, affected by the lifting of restrictions on the COVID-19 epidemic, will put slight pressure on prices, but Fitch expects many other factors to be more lasting in the second and third quarters.

* maintain high prices * *

Fitch expects aluminum prices to be $3000 a tonne this year and $2800 a tonne in 2023, including its expectation of continued supply disruptions in the coming year and even 2023.

In particular, the company noted that its oil and gas team believed that energy prices could remain high and be affected by tensions in Ukraine and Iran.

In addition, Fitch expects alumina prices to remain high for a longer period of time due to current supply problems and higher demand expectations.

With aluminium inventories at historic lows, the aluminium market will remain very sensitive to supply shocks.

While Russian and European smelters will be able to cope with rising aluminium prices this year and next, bringing more supply to the market, Chinese production is relatively inflexible, with smelting capacity capped at 45 million tonnes a year.

China produced 38.9 million tons in 2021, accounting for 59 per cent of global output. Fitch points out that under the current policy, there is limited room for production expansion in China.

These supply restrictions will anchor prices at higher levels, and while production in other regions will be strongly stimulated, Chinese supply constraints will provide strong support for prices in the short and long term.

In addition, the company expects demand from China to rise this year.

Looking ahead, Fitch expects aluminum prices to continue to rise because it will be supported by an accelerated transformation of the green economy, especially sustained demand from the automotive industry. Aluminum is used instead of other metals to reduce the weight of electric cars.

In this regard, the company expects an increase in the use of metals in automotive structures and body parts, such as fenders and doors. In this context, the demand for the use of Bubble aluminum in construction and automobile manufacturing will increase.

Fitch expects Chinese aluminium production to stagnate after 2025, limiting the upward growth of global aluminium production, helping to reduce the global aluminium surplus. China's smelting capacity will peak in the next few years.

At the same time, the company said rising demand for low-carbon aluminium would pose a future risk to aluminium pricing because sustainability remains the top consideration this year and beyond.

Fitch said that at present, demand was insufficient to achieve a significant or reliable "green premium", but as the target date for carbon neutralization approached in the coming decades, the market could face complications in trying to price the more sustainable metal.