Aluminium likely to rule firm in 2023 on supply woes, rising demand

Aluminium prices will likely rule firm in 2023 on supply constraints and rising demand, especially with China easing Covid-19 curbs, analysts say. 

Fitch Solutions Industry Research and Country Risk, a research unit of the Fitch Group, sees prices ruling at elevated levels but not rallying to the highs seen in 2022.

Goldman Sachs, on the other hand, expects aluminium prices to surge further, while other analysts point to Shanghai smelter cutting production and Chinese ingot inventories being de-stocked as bullish signs.

The development comes amidst data from the International Aluminium Institute showing the metal’s production in January increased by 3.3 per cent to 5.83 million tonnes (mt) from 5.64 a year ago. However, production in 2022 was up by a mere 2 per cent at 69 mt.

China’s Covid-19 curbs go

Against this, global demand will likely rise in 2023 due to China’s economic recovery and the loosening of its Covid-19 policies, with consumption expected to grow by 4.7 per cent.

 “We maintain our 2023 aluminium price forecast at an average of $2,600/tonne... Our forecast implies prices will remain elevated around current levels in 2023 on the back of persisting supply constraints and the lifting of Covid-19 restrictions in Mainland China which is likely to boost demand,” said Fitch Solutions.

US international multinational investment bank Goldman Sachs said aluminium prices are likely to average $3,125 in 2023, higher than its previous forecast of $2,563. It expects aluminium to touch $3,570 over the next 12 months.

On Monday, aluminium on the London Metal Exchange (LME) gained over 2.5 per cent at $2,457.50 a tonne for the three-month contract. It had surged to a six-month high of $2,660 on January 25. 

Europe smelters’ challenges

Aluminium prices declined on fears of a global economic slowdown and higher production in China, forcing investors to unwind their long positions. 

Goldman Sachs said it anticipated robust prices for aluminium mainly on account of “expectations of possible supply shortages driven by increased demand in China and European countries”.

ING Think, the financial and economic analysis wing of Dutch multinational financial firm ING, said aluminium smelters in Europe still face challenges. 

“We do not see prices rallying to the highs of 2022 due to slowing global growth and weak demand outside of China. That being said, risks to our forecast lie on the upside as a stronger-than-expected recovery of domestic industries in China would propel prices higher than our current expectations,” Fitch Solutions said.

Low inventories

On the supply side, the US research agency said it foresees continued strains in production in China and Europe providing additional support to prices as power problems continue to burden production with energy costs remaining elevated.

ING Think pointed to Norsk Hydro’s statement that 6,00,000 tonnes of its aluminium capacity are “still at risk” in case of another spike in energy prices. 

Goldman Sachs said another reason for forecasting higher aluminium prices this year is that inventories are currently at a 21-year low. At 1.4 mt, global inventories are down by almost 0.9 mt from a year ago.

Reports from China said the growth in inventory had slowed down. 

Russian output

Goldman Sachs said the price momentum is likely to see an uptrend triggered by a benign macro environment, weakening dollar headwinds and a slowing rate hike cycle.

Fitch Solutions said European aluminium production will continue to be hit by elevated energy costs. Though production may not be hit as hard as in 2022, the output growth will likely slow in the short to medium term as smelters slowly come back online. 

Russian output has been affected by sanctions-related increases in input costs. Fitch Solutions expects Russian production to decline 3 per cent year-on-year in 2023. 

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