Research on Aluminum Price Changes in 2025 under Green Transformation [[SMM Aluminum Conference]]

On April 16, at the AICE 2025 SMM (20th) Aluminum Industry Conference and Aluminum Industry Expo—Alumina and Aluminum Raw Material Forum, hosted by SMM Information & Technology Co., Ltd. (SMM), SMM Metal Trading Center, and Shandong Aisi Information Technology Co., Ltd., and co-organized by Zhongyifeng Jinyi (Suzhou) Technology Co., Ltd. and Lezhi County Qianrun Investment Promotion Service Co., Ltd., Lin Jinyu, a researcher at SPIC Aluminum International Trading Co., Ltd., shared a study on "Research on Aluminum Price Changes in 2025 Under Green Transition."

Does Supply and Demand Really Determine Prices?

The End of the Last Cycle Is the Beginning of the Next

For producers, inflation is both an opportunity and a challenge. Rising commodity prices allow producers to gain more profit, but if raw materials cannot be secured, it may lead to production halts. Therefore, it is necessary to ensure raw material reserves and hedging.

For processing enterprises, there is no need to overly focus on price differences over 3-5 days or even about a month. Instead, they should aim to lock in the "quantity" and "price" of raw materials in the broader trend, as tomorrow's orders will always be more profitable than today's.

For traders, it is crucial to seize structural market opportunities.

Supply vs. Price Perspective

1. What Determines the Change in Commodity Prices?

In past studies, we always believed that reduced supply leads to price increases, increased demand leads to price increases, and declining inventory leads to price increases, among others.

2. A Real Case of Aluminum

However, from the operational mechanism of aluminum prices from 2012 to 2024, the above conclusions are not accurate. Only during certain periods in 2012-2013 and 2020-2021 did rising supply lead to falling aluminum prices.

3. Actual Patterns

More often, rising supply is accompanied by rising prices, while declining supply is often accompanied by falling prices. Over the past decade, this has been a more probable event behind the operation of aluminum prices.

4. Why Is This the Case?

Because high aluminum prices always stimulate producers to increase production, while low aluminum prices often force high-cost capacity to exit the market due to unprofitability. This indirectly proves the scientific logic behind price increases leading to production growth and price decreases leading to production cuts. The conclusion that increased supply will lead to price declines is at least not rigorous.

Demand vs. Price Perspective

1. What Determines the Change in Commodity Prices?

From the demand perspective, declining inventory indicates increased apparent demand, which should also be accompanied by rising prices.

2. A Real Case of Aluminum

However, from the operational mechanism of aluminum prices from 2012 to 2024, the above conclusions are also not precise. From 2016 to 2024, there were multiple cases of rising inventory with rising prices and declining inventory with falling prices.

3. Actual Patterns

This indicates that supply and demand fundamentals based on quantity (inventory) cannot precisely predict the operation of aluminum prices.

Balance vs. Price Perspective

1. What Determines the Change in Commodity Prices?

From the balance perspective, shortages of commodities mean rising prices, while surpluses mean falling prices.

2. A Real Case of Aluminum

However, from cases since 2018, the green box areas reflect the above patterns, while the red circle areas show the opposite.

3. Actual Patterns

More often, surpluses do not drive prices down but instead drive prices up or cause fluctuations. Similarly, shortages do not necessarily lead to price increases, and significant shortages are often accompanied by price declines or fluctuations.

4. Why Is This the Case?

Therefore, the conclusion that shortages or surpluses based solely on quantity will lead to price increases or decreases is at least not rigorous.

Supply and Demand Do Not Fully Determine Prices

Historical data tells us that reduced supply does not necessarily mean price increases, and increased supply does not necessarily mean price increases.

Historical data tells us that increased demand (declining inventory) does not necessarily mean price increases, and decreased demand (rising inventory) does not necessarily mean price increases.

Historical data also tells us that shortages do not necessarily drive prices up, and surpluses do not necessarily drive prices down.

What Determines Supply?

The Development History of China's Aluminum Industry

It elaborated on the development history of the aluminum industry based on aluminum production.

Four Stages of China's Aluminum Development

• 1980-1997: Initial Stage

Domestic: External sanctions were lifted, and large-scale loans introduced advanced Western industries.

Overseas: The Latin American economic crisis led to industrial outflows, which Asia, including China, benefited from.

• 1997-2007: Development Stage

Domestic: To address domestic economic bottlenecks and the Asian financial crisis, investments were driven by government bonds.

Overseas: China's accession to the WTO attracted significant foreign investment.

• 2007-2015: Takeoff Stage

Domestic: The 4 trillion yuan government bond investment to address the subprime crisis led to excess funds flowing into real estate, boosting aluminum demand.

Overseas: QE1, QE2, QE3 injected $4 trillion, with over 60% flowing into commodity markets.

• 2016-2025: Restriction Stage

Domestic: A ceiling was set to protect enterprises and prevent disorderly expansion.

Overseas: The pandemic, $10 trillion from the US and India, and similar measures from the UK, EU, and Japan entered the commodity market, with aluminum prices peaking and profits nearing 7,000 yuan/mt.

Summary of Development History

Capital Circulation Drives Supply

From the four cycles of aluminum development, none were without the driving force of capital circulation. Since 2015, China has effectively refused to use resources, the environment, and labor as costs to export deflation to currency-producing countries. However, US dollar hegemony remained unshakable at the time. The real game began with the 2015 exchange rate reform. The imported inflation in 2020 was already the swan song of US dollar hegemony.

What Determines Demand?

It elaborated on the decisive role of US dollar tides on commodity prices over the past 50 years, the events triggered by each wave of US dollar tides, and the commodity price fluctuations caused by these tides.

Three Capital Flows Determine Commodity Prices

Capital Flow Volume: The most critical factor determining prices is the total volume of circulating capital. Both Friedman and Keynes stated that inflation is a monetary phenomenon.

Irving Fisher: MV=PQ

Capital Flow Direction: The direction of capital flow between regions also has a decisive impact on prices. Large-scale inflows into the securities market drive stock prices up, while large-scale inflows into the commodity market drive commodity prices up.

Capital Flow Speed: Flow speed refers to the interest rates of various currencies. Interest rates are the time cost of prices. When interest rates are low, the speed of currency circulation accelerates, leading to faster asset price increases.

Future Projections for Aluminum Supply and Demand

It analyzed monetary flow volume, monetary flow speed (US fiscal revenue and expenditure), China's monetary flow speed (RRR cuts and interest rate cuts indicate faster currency circulation in China), and EU and Japan's flow volume and speed (increased flow volume and faster speed in Europe; stable flow volume and slower speed in Europe).

Analysis of Monetary Flow Direction

Spatial Flow Direction: Monetary flow direction is divided into spatial flow and inter-product flow.

Spatial flow refers to the flow within countries. For example, the recent sharp decline in the US dollar index indicates capital outflows from the US, leading to simultaneous declines in US exchange rates, stocks, bonds, and commodity markets.

Inter-Regional Flow: The Secret of Capital Circulation

It also summarized and analyzed the secrets of trade wars, the different spheres of influence between China and the US, whether currency depreciation equals increased exports, whether tariff wars equal decreased exports, and extreme measures focusing on Russia-Ukraine and the Middle East.

Analysis Results

• Additions: Mostly Concentrated in Indonesia

In 2025, overseas aluminum production is expected to increase by 1.1 million mt, with 750,000 mt concentrated in Indonesia, accounting for 67%.

In the long term, of the 8.2 million mt capacity, 4.5 million mt will be commissioned in Indonesia, accounting for 55%.

• Limitations: Indonesia's Geopolitical Landscape and Culture Limit Aluminum Efficiency

Indonesia, composed of over 17,000 islands, inherently faces challenges in industrial development due to transportation and other factors.

Central Asia, the Middle East, and North Africa have excellent resource endowments, rapid logistics, and prime geographical locations. However, conflicts have hindered industrialization. Significant growth in global aluminum supply and scale will only be achieved when these regions meet the conditions of "harmony among people."

It also analyzed the trends of M, V, and Q.

Conclusion

Price Forecast

In the short term, market concerns persist.

Whether demand will increase due to tariff reductions requires market validation.

In the long term, based on analysis results, M and V increase while Q remains stable. P is bound to rise.

There is strong confidence in the medium and long-term trends of aluminum prices.

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