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Global market dynamics make aluminum price forecasts challenging

January 19, 2024
According to foreign news on January 17, after recording a monthly increase of more than 8% in December last year, aluminum prices retreated in the first week of January this year and resumed the trend of sideways consolidation. With global demand still subdued, the market appears to have shrugged off the alumina supply crunch. Alumina prices soared at the end of 2023. Despite this, there is still no consensus among experts on the overall forecast for aluminum prices in 2024.
Overall, from December to January this year, the aluminum Monthly Metals Index (MMI) rose 3.07%.
Russian aluminium's share of LME inventories soared to 90 per cent
The latest round of UK sanctions bans British citizens and companies from trading certain Russian metals, leading to a surge in stockpiles of Russian-made aluminium. According to the LME's country of origin report, Russian primary aluminium inventories more than doubled in December, an increase of about 118 per cent.
The reduction in Indian aluminium stocks comes as Russian stocks account for 90.41 per cent of total aluminium stocks on the London Metal Exchange (LME), a record high. As part of its transparency commitment, the LME began publishing country of origin data in January 2023. Indeed, escalating sanctions on Russian metals have led to a significant increase in these metals in LME warehouses throughout the year. At the start of last year, Russian aluminium stocks were just under 41 per cent, less than half the current figure.
At 122,850 tonnes, Indian aluminium stocks account for more than 53 per cent of the LME's total.
By December 2023, that level had fallen sharply to 32,950 tonnes, less than 9% of the total stock. These changes at the LME continue to cause problems for those rushing to compile aluminium price forecasts for the rest of 2024.
Aluminium price forecast: Risks to LME aluminium contracts
While this view is widely supported, the risks associated with an increase in inventories in Russian origin on the LME have yet to materialize. Following the LME's decision to continue receiving Russian metals into its warehouses, market participants noted that LME prices may begin to reflect discounted prices for Russian metals. In their view, this would challenge its position as a global benchmark.
In July 2023, Norsk Hydro estimated that the price of aluminum from Russian sources was $100-300 per ton lower than other sources. However, despite Russia's increasing dominance of LME inventories, LME contracts have yet to materially differ from other exchanges such as the CME. In fact, as of January 12, the LME price is trading at a small premium to the CME price, and the almost perfect correlation between the two price points remains unchanged.
Nevertheless, other institutions have expressed the opposite view. In a recent analysis, Amalgamated Metal Trading (AMT) forecast aluminum prices trending higher, in part due to increasing sanctions on Russian aluminum. The analysis noted that moves by the UK and other countries could deter "traders from holding/transporting metals and make short speculation increasingly risky." Given this backdrop, prices are likely to trend higher this year."
Global premiums show short-term divergence
While the market waits to see what impact, if any, the latest sanctions will have on the LME contract, aluminium prices remain in a prolonged sideways trend. However, global premiums as a measure of regional demand will continue to diverge in the near term.
The European aluminium unpaid premium rebounded slightly at the end of 2023. The premium was at its lowest level since February 2021 in the first half of December before rebounding more than 23 percent by early January. There is no way to tell whether the premium will continue its upward trend, but it seems to have established at least a temporary floor.
Meanwhile, aluminum premiums in the Midwest continued their sideways trend in early January, indicating a meaningful shift in lackluster domestic demand. The premium follows a rally in aluminum prices at the end of the year, which most experts attribute to raw material supply concerns in Guinea and China. However, like aluminum prices, the Midwest premium has fallen back to its lowest range since March 2021.
In the first quarter of 2024, the quarterly major Japanese port premium (MJP) looks increasingly bearish.
Japan is Asia's largest import market and its premium is an important benchmark for regional demand. The report shows that buyers drove down the premium to $90 / ton, which is down nearly 7% from the fourth quarter of 2023. This bearish demand situation in Asia will not provide support for global aluminum prices.
According to the Japan Aluminum Association, shipments of aluminum sheet and extruded products fell 5.1% in November 2023 from a year earlier, the 12th consecutive monthly decline.