Aluminum demand in Europe and China has contracted sharply in recent weeks amid the global economic slowdown, raising the risk of further price falls.
Three-month aluminum on the London Metal Exchange has fallen 16 percent since peaking at $2,679.5 a tonne in January and was flat at $2,260 on Tuesday. Aluminum futures fell last week to their lowest level since Oct. 31.
"It's clear from my recent observations in Europe that demand is very bad, particularly in the construction sector," said Ross Strachan, an analyst at consulting firm CRU.
"In fact, in the last six to eight weeks, the situation has deteriorated."
It told the CRU World Aluminium Conference in London that buyers in the industrial sector expect demand to fall between 20% and 40% in the first half of 2023 compared with the same period last year.
Feedback on demand from China has also been pessimistic, Strachan said, adding that sentiment toward China has been cautiously optimistic recently.
Dan Smith, director of research at Amalgated Metal Trading, said the dismal macroeconomic outlook is creating uncertainty and the banking crisis, which has cooled financial markets, could provide more surprises.
"There may be more icebergs in the short term. Aluminum prices are likely to fall in the next few months, "he said. Prices may recover by the end of the year, it said, without giving a specific price forecast.
Duncan Hobbs, director of research at Concord Resources, said global aluminum production is expected to rise 2 percent this year, but demand is expected to rise just 1.5 percent, leaving excess supply on the market that will weigh on prices.
Futures markets show investors' expectations for the United States.
Hobbs said futures market forecasts showing investors betting the Fed will cut rates by nearly 100 basis points by the end of the year were wrong because inflation remains high.
"Somebody's going to be disappointed, and I would say it's going to be risk asset markets."
Hobbs believes the dollar will strengthen as interest rates remain high, which will put pressure on commodity prices, including aluminum.