With increasing use in the energy and automotive sectors, aluminum sales could reach $238 billion by 2028, according to estimates, up from $142 billion in 2021.In an interview, Harbor Aluminum's founder says excess inventory is a growing risk that could force producers to reduce prices
Demand for aluminum soared this year, with prices reaching an all-time high (ATH) in March, as the post-pandemic consumer boom generated strong demand for electric vehicles (EVs), household appliances and renewable energy equipment, which use the silver. gray metal as components. Play the video
JORGE VÁZQUEZ, FOUNDER OF HARBOR ALUMINUM, DISCUSSES THE ALUMINUM MARKET WITH JIN CHANG, GLOBAL HEAD OF METALS AT CME GROUP.
Amid such demand and price volatility, futures traders are scrambling to manage price risk. Demand is so dynamic that CME Group saw physical aluminum trading volume triple from Q1 to Q3 2022 with a record 3700 contracts changing hands daily.
To further develop the business, the CME partnered in October with financial services firm Marex to expand client access to its base metals suite.
"Clients have come to us for a viable alternative to manage risk in the aluminum space and the base metals industry in general," said Jin Chang, managing director and global head of metals at CME, during a recent Open Markets Exchange of Ideas panel . "Volatility is here to stay and we need proper risk management tools to manage it, as well as transparency around price discovery."
Andy Massey, vice president of metals, procurement and transportation at U.S.-based Bonnell Aluminum, added that demand for electric vehicles remains high, driving current and future adoption of the lightweight metal. "The aluminum market is exploding right now," he noted. "We are using more and more aluminum in automobiles. We used to get excited about 300 pounds per vehicle, but with some of the EV models, we're getting 500 to 800 pounds. It's really a big jump."
240 billion market
Purchases of aluminum, which is also used to manufacture aircraft and renewable energy equipment such as wind towers or solar panels, remain strong in the United States, although they have softened in Europe and China, Massey added. Europe has been affected by the Russia-Ukraine war and rising energy prices, while China continues to be adversely affected by its strict zero covid policy, as well as droughts affecting key production centers.
Overall, however, growth is expected to remain healthy with base metal sales forecast at $238 billion by 2028, up from $142 billion last year, according to a report by SkyQuest Technology Consultancy.
"In the long term, the outlook for aluminum metals is good," Chang added. "This is because it is a key ingredient in the clean energy transition, while aluminum and copper are also very important components in electric vehicles."
The automotive industry is the world's largest consumer of aluminum, producing nearly 67 million vehicles per year, according to SkyQuest. China is the largest producer, accounting for 60% of production, followed by Russia and then Europe and the U.S. The world produced 68.9 metric tons of aluminum in 2022 through October,
Loan of the future
As the world faces a possible recession (the International Monetary Fund recently cut its global growth outlook to 2.7% from 3.8% in January), fears of global oversupply are growing.
Jorge Vazquez, founder of leading consulting firm Harbor Aluminum, sees excess inventory as a growing risk. Demand is already beginning to slow, so pandemic-induced oversupply could soon struggle to find a home, squeezing margins and forcing producers to cut prices.
"During the pandemic, consumers bought new homes, boats, motorcycles and even washing machines, all of which are aluminum-intensive products," Vazquez told Chang in a recent interview. "In a 12-month period, we bought more than we would have bought in a three-year span. In other words, we borrowed demand from the future."
That, Vázquez argued, will undermine consumption and derail prices in the coming months. With higher interest rates and the lack of economic stimulus, "things will get a little more complicated," he added.
Impact of sanctions?
When asked how a new round of U.S. sanctions on Russia could affect the sector, Vazquez said a repeat of the 2018 regime would drive prices up.
"If for some reason the US sanctions Russian aluminum, if they repeat what they did in 2018, when US and non-US persons were banned from buying from or providing services to companies that subcontract Russian aluminum, the price and premiums would skyrocket," he explained. "However, if the U.S. simply bans Russian aluminum in the U.S. or increases tariffs, because we import so little from Russia, the impact will be irrelevant in price and premiums."
In 2018, when Washington imposed levies on Russian aluminum company Rusal, the event triggered prices.
"Initially (shortly after Russia's invasion), the fear of sanctions was real, but the market has moved away from that," says Guy Wolf, global head of market analysis at Marex. "The experience of 2018, when the U.S. imposed sanctions on Russian aluminum, was that the only people hurt were domestic consumers. U.S. auto companies suddenly found themselves at a huge cost disadvantage."
What to see?
Meanwhile, the panelists discussed some of the key events to watch in 2023.
"If I had to pick one thing, I would look at base metal production, including aluminum, and look at demand to see where it goes...," Massey said. "I wonder if the economy will be as bad as expected next year and if there will be surpluses."
For his part, Wolf said he would monitor prices. "I would look at inflationary expectations," he said. "Central banks are a bit misguided in thinking that the recent inflation problem is because demand is too strong. Inflation is high because of the one-time energy shock from the Ukraine situation."
