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Last year, the aluminum market, which weighed 65 million tonnes a year, was disrupted after the US Treasury imposed sanctions on Rusal, the second largest producer outside China, and its oligarch owner, Oleg Deripaska.
In 12 months, Rusal is not only free of US penalties, but investors are drawing a much more positive picture of aluminum, which is used in all areas, from beverage cans to cars, after lagging behind. compared to all other industrial metals.
According to traders, record Chinese exports in January and March were a major factor in the poor performance of aluminum this year. Tian Yong, Senior Vice President of Chinalco, China's largest aluminum producer, told a London conference that Beijing's environmental reforms have reduced capacity and demand growth has increased. .
It is currently estimated at about 5 million tons of offline capacity in China, with little indication that it will be allowed to operate again. At the same time, as stimulus measures taken by Beijing help boost economic growth, demand in China could outstrip supply this year, tipping the domestic market into deficit and creating global ramifications. .
With rising demand and export arbitrations far less attractive than they were – the price of aluminum in Shanghai, for example, is rising while the price of the London Metal Exchange is modeled – the chances of a resumption of aluminum shipments seem to diminish. (Analysts also believe that Chinese exporters have tried to send as much metal as possible before the March deadline of trade negotiations between the two countries.)
Regarding inventories, the consulting firm CRU estimates that the vast majority of stocks formed after the global financial crisis will have disappeared by the end of 2019 or in 2020.
This could surprise consumers and mean "downgrades" on the LME – a market structure in which futures are trading at prices below the spot price, suggesting a tight supply.
But while the risks for aluminum are on the rise, the same can not be said of alumina, the main ingredient needed to make aluminum.
The price of alumina doubled in value to nearly $ 700 a tonne last year, following the sanctions imposed by Rusal and problems at a major refinery in Brazil.
Since then, it has fallen back around $ 400 per ton, but it could weaken further if the Norsk Hydro plant at Alunorte resumes full production.
As always in commodities, much will depend on China, which has taken steps to fill the supply gap caused by Alunorte's problems – accused of contamination of local drinking water – as well as from Rusal last year.
Just as they were the first to react to high prices by increasing production, Chinese refiners should do the same, on the downside, by reducing them. This should provide a floor for prices, at least in theory.
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