Goldman Sachs has raised its price forecasts for aluminum in reaction to higher demand for the metal in Europe and China. But the Wall Street finance giant also warned that this increased demand could lead to supply shortages.
In the London market, aluminum is expected to average $3,125 a ton this year, according to Goldman Sachs metals strategists Nicholas Snowdon and Aditi Rai. In a note to clients, they pointed out that this is over 20 percent more expensive than the current price of $2,595 per ton, and is also significantly more than Goldman Sachs' previous forecast of $2,563 per ton. (Related: MORE METAL: China's public gold holdings now over 2,000 tons after another huge purchase in December.)
Aluminum is one of the most commonly used metals in the world, used to make everything from beer and soda cans to plane parts. Snowdon and Rai warned that they can see aluminum prices climbing to as high as $3,750 a ton in the next 12 months.
"With visible global inventories standing at just 1.4 million tons, down 900,000 tons from a year ago and now the lowest since 2002, the return of an aggregate deficit will quickly trigger scarcity concerns," said the analysts. "Set against a far more benign macro environment, with fading dollar headwinds and a slowing Fed [Federal Reserve] hiking cycle, we expect upside price momentum to build progressively into spring."
Demand for aluminum rises as global production dips
Visible global inventories stood at just 1.4 million tons by the end of 2022, according to Snowdon and Rai. This is a 900,000-ton decrease from a year ago and the lowest visible global levels have been since 2002.
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Furthermore, Europe's production has shrunk by 1.4 million tons due to manufacturing cuts. This does not include the one million tons of Russian aluminum diverted to Asia due to Western sanctions on Russian metals.
"Europe is a deficit market and is pushing itself in a corner – when demand returns, there will be big trouble," said one market source that spoke with S&P Global.
These supply issues, made worse by forecasts suggesting that global aluminum demand is expected to increase by almost 40 percent by 2030, do not paint a good sign for prices and global supply.
Demand is expected to increase for multiple sectors, including transportation, construction, logistics and the electrical industry.
Aluminum prices in Europe reached record highs in early 2022 following the beginning of Russia's special military operation in Ukraine. It has since slumped as Europe's energy crisis and the slowing global economy led many smelters in the continent to significantly curb production or outright shut down certain factories. This has led to steep consequences now being felt by the global aluminum market that is unlikely to be resolved soon – not until production ramps up again to pre-invasion levels.
There are some signs that some shuttered aluminum production in Europe may start up again. Aluminium Dunkerque, a French aluminum manufacturer and operator of one of Europe's largest smelters, announced on Jan. 11 that it has started relaunching production capacity that it was forced to idle last year when the company was hit by soaring energy costs.
As a company spokesperson noted, Aluminium Dunkerque closed down around a fifth of its production capacity. But getting back up to full capacity will take time.
Watch this episode of the "Health Ranger Report" as Mike Adams, the Health Ranger, discusses the massive global shutdown in metals smelting operations.
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