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January 16, 2019

Aluminum became the best-performing industrial metal in 2017


AluminumAluminum is close to become the best-performing industrial metal in 2017. The growing confidence that China will take steps to end oversupply, encourages prices of the commodity to their highest level in nearly three years. The industrial metal, which is used for a number of purposes, recorded a rise in its price of nearly 15% this year. For comparison, zinc rose by 2.7% and copper by 3.1%.

Aluminum with delivery in July is traded at 1,933 USD per tonne. Since the financial crisis, oversupply has shadowed the market as Chinese manufacturers spent billions in investing in new capacities and new technologies.

Since the Chinese authorities have dealt with excess capacity in the coal and steel industries, there are signs that they are focusing on aluminum. There is a big shift in China’s approach to supplying aluminum and in the raw materials market no one wants to bet against the Chinese government, according to the experts. This increases the hopes among investors that the market will finally go to a deficit where demand is more than supply. The metal is a key source of revenue for a number of major mining companies such as Rio Tinto, Norsk Hydro and Vedanta Resources.

Earlier this year, the Chinese authorities issued a directive to shut down aluminum production facilities in the areas around Beijing in the winter to reduce air pollution. In addition, the leading planning agency – National Development and Reform Commission, has announced plans to fight illegal projects in the industry, instructing local authorities to check on businesses built after 2013 to see if they meet environmental protection requirements. So only during the last week in the Xinjiang-Uyghur Autonomous Region was halted the construction of three new plants with a capacity of 2 million tons per year.

Pollution control and supply reforms are among the Chinese top priorities. The aluminum industry was not profitable and was the main cause of pollution in China, as 90% of its energy came from coal-fired power plants.

However, some experts believe that the price increase is excessive. The data from the London Stock Exchange show hedge funds and other speculators have accrued record high-stakes at high prices, which is a signal that the rise in the price of aluminum is exaggerated. To reach the price of more than 2,000 USD per tonne will be needed for a real decline in output. If there are no reductions in yields in the second half, prices will likely be exacerbated by the surplus on the Chinese market.


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