Aluminum

Alex Sutton analyzes the aluminum industry’s market trends and pricing and provides advice for lenders based on the short- and long-term outlook.

Current Trends

  • Aluminum prices jumped over 25% in the first quarter of 2022. The Russia-Ukraine war played a role in this increase and may impact aluminum supply in 2022 as Russia accounted for approximately 5.4% of global mining production in 2021.
  • Global mining production levels remained relatively stable and ended 2021 up by 4.3% despite the effects of pandemic-related challenges.
  • End-market demand varied by sector. The construction and packaging sectors remained strong in 2021 and aerospace made a significant recovery from 2020; however, automotive production remains weak because of continuing supply chain issues.
  • Aluminum tariffs enacted during the U.S. and China trade war remain in place but have softened with country-specific exclusions and a 2021 deal establishing a new quota system for European aluminum imports to the U.S.

Market Outlook

Supply chain and other challenges have affected global aluminum availability, pricing, and downstream product manufacturing and distribution since 2020.

 Prices Hit Record Highs

Aluminum pricing recovered from pandemic-related decreases in 2021, reaching record highs in March.[1] A recovering global economy, ongoing supply chain issues[2] and the Russia-Ukraine war[3] drove these increases despite relatively weak automotive demand, which is the industry’s key sector.

Global inflationary trends in 2021, including high energy prices, influenced aluminum pricing and production. Additional factors included new environmental regulations in China that resulted in the closure of multiple Chinese coal plants.[4] The price of high-grade aluminum ingot as reported on the London Metal Exchange (LME) reached a 2021 high of $3,180 per metric ton in October, a level not seen since July 2008.[5] In late 2021 prices receded as coal production in China appeared to catch up but rose again in early 2022 driven by concerns about the impending Russia-Ukraine war.[6]

On March 2, 2022, the European Union (EU) announced it would bar seven Russian banks from the Society for Worldwide Interbank Financial Telecommunication network (SWIFT) as part of broader sanctions. Because Russia accounted for 5.4% of 2021 global smelter production,[7] these sanctions heightened concerns about future supply availability.[8] The U.K. passed a 35% duty on Russian and Belarussian imports, including copper, lead, primary aluminum and aluminum alloy, in March 2022, adding to the initial sanctions’ effect on the market.[9] The LME suspended placement of Russian-branded base metals from its U.K.-registered warehouses in April because of the additional duty.[10] Since the war began in February, prices in the U.K. have risen by only 0.3%, as the risk had already been priced in. However, aluminum prices in the U.S. have risen by 25.4% since early 2022 primarily because of war concerns.

Although traders are concerned about future economic conditions and additional geopolitical risks, historically low aluminum warehouse levels and ongoing supply chain issues support what appears to be a firm market, according to price assessments released by S&P Global in early April 2022.[11]

Global Monthly Aluminum Price

Source: Aluminum LME High Grade

Production and Tariff Trends

The U.S. Geological Survey indicates primary aluminum smelting production and capacity utilization in the U.S. dropped from 55.9% to 53.7% in 2021 after a weak 2020. Smelting of primary aluminum, which accounted for approximately 14.7% of total available U.S. supply in 2021, dropped from just over 1 million metric tons in 2021 and the end of 2020 to 880,000 metric tons at the end of 2021[12] Despite this drop, total U.S. consumption increased 8% on a volume basis for 2021. Domestic suppliers, importers and recycling sources fulfil aluminum supply. There are few companies in the U.S. that provide a primary source for aluminum.

 Global production grew 4.3% in 2021 driven by strong production growth in China, India, Norway and the United Arab Emirates. Despite significantly higher alumina or aluminum oxide, bauxite and energy costs, production in China alone increased by 5.1%.[13] This was despite the lingering effects of the remaining Section 232 tariffs and a final determination by the U.S. Department of Commerce regarding countervailing duties for a series of foil and common alloy aluminum products in multiple countries. Additionally, the U.S. reached an agreement with the EU regarding Section 232 tariffs, establishing a quota system to allow duty free aluminum imports to the U.S. for each EU country. The agreement has been in effect since January 1, 2022.[14]

End-Market Performance

IBISWorld reports 2021 aluminum consumption in U.S. end-user industries included 35% for transportation applications, 18% for packaging, 13% for exports, 12% for construction, 7% for electrical and 6% for consumer durables.[15]

U.S. domestic automotive production in 2021 was 18.8% below 2020 levels, which were already down 23.4% from 2019.[16] Demand rebounded with a recovering aerospace sector, which increased 16.1% in 2021 after production dropped 17.3% in 2020.[17]

Other sectors like packaging also saw robust demand and increased from 121 billion units in 2020 to 127 billion units in 2021.[18] Foil packaging products continue to see strong demand. The housing and construction markets are also key drivers for the aluminum industry. Although 2021 privately held housing building permit applications increased 0.3% over 2020, both private housing starts and completions fell on a year-over-year basis by 0.9% and 5.8%, respectively.[19]

Some of these declines occurred despite extremely high demand, with supply chain issues limiting housing production and inflation hindering the marketplace. Despite these declines, the housing sector was generally strong at the end of the first quarter of 2022. Additionally, total public and private construction spending increased 8% in 2021 over 2020, exhibiting another positive factor for the industry.[20]

Valuation Considerations

Overall, experts expect the industry to rebound and industry operators to benefit from rising demand for aluminum from automotive manufacturers through 2026. Experts anticipate aluminum will increasingly replace steel as the metal of choice for automotive bodies and frames because of its relatively higher strength-to-weight ratio and growing vehicle fuel and emissions standards. As automakers expand production of lightweight vehicles, higher demand and prices for aluminum will likely follow. Data suggests industry revenue may increase an annualized 1.8% to $47.8 billion through 2026.[21]

[1]Based on pricing data reported by S&P Global for P1020 aluminum ingot delivered to the US Midwest.

[2] Erick Beaudoin, Construction Continues to Adapt Amid Increasing Costs and Labor Shortages, Gordon Brothers, 2021

[3]Peter Hobson, “Metals-Aluminum prices plunge as China ramps up coal production,” Reuters, November 4, 2021.

[4]Lu Han, “Market Eyes Higher Copper Concs TC/RCs Despite Russian Sanctions,” S&P Global, February 28, 2022.

[5]https://www.reuters.com/markets/europe/tight-supply-drives-aluminium-towards-13-year-high-2022-02-08/

[6] Diana Kinch, “Metals prices may rally further if Russia-Ukraine tensions impact supply: analysts,” S&P Global, January 21, 2022.

[7] according to the U.S. Geological Survey

[8] Mineral Commodity Survey – Aluminum, US Geological Survey, 2021.

[9] Henry Lazenby, “Copper deficit narrows slightly to 475,000 tonnes in 2021,” Mining.com, March 22, 2022.

[10] Jaqueline Holman, “LME suspends placement of Russian base metals in UK warehouses,” S&P Global, April 1, 2022.

[11] Sarah Baltic, “US aluminum premium sees volatility on continued market uncertainty,” S&P Global, April 1, 2022

[12] “U.S. Geological Survey, Mineral Commodity Summaries, January 2022,” USGS, January 2022.

[13] “U.S. Geological Survey, Mineral Commodity Summaries, January 2021,” USGS, January 2021.

[14] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/joint-us-eu-statement-trade-steel-and-aluminum

[15] Sean Egan, “Aluminum Manufacturing in the US – Industry Report 33131,” IBISWorld, July 2021.

[16] Domestic Auto Production, Thousands of Units, Monthly, Not Seasonally Adjusted as reported by the Federal Reserve Bank of St. Louis. Retrieved on April 4, 2022.

[17] According to the Federal Reserve Bank of St. Louis

[18] Matthew Pigot, “Metal Can & Container Manufacturing in the US – Industry Report 33243,” IBISWorld, November 2021.

[19] “Monthly New Residential Construction, February 2022,” The U.S. Census Bureau and the U.S. Department of Housing and Urban Development, March 17, 2022.

[20] “Monthly Construction Spending, February 2022,” The U.S. Census Bureau, April 1, 2022.

[21] Sean Egan, “Aluminum Manufacturing in the US – Industry Report 33131,” IBISWorld, July 2021.



Insights, delivered right
to your inbox.

Sign up to receive insights, event information
and company news.